In May of this year, the Financial Industry Regulatory Authority (FINRA) initiated a request for feedback on improving capital formation in an effort to increase efficiency and reduce burdens on the capital-raising process. The Association of Online Investment Platforms (AOIP), a group that advocates for online capital-raising platforms, submitted recommendations to FINRA on how to improve Regulation A or Reg A+.
Reg A+ is a securities exemption that allows companies to raise up to $75 million through crowdfunding, catering to both accredited and non-accredited investors. AOIP emphasized the need to speed up the approval process for offerings under Reg A as the current timeline can hinder the viability of firms in need of capital.
Other interested parties also submitted their recommendations to FINRA. CrowdCheck, founded by securities crowdfunding pioneer Sara Hanks, expressed concerns about the delay in Reg A approvals. They highlighted instances where the Securities and Exchange Commission (SEC) had no further comments on offerings, but FINRA had not cleared them, causing significant problems for small companies waiting for clearance.
CrowdCheck also addressed the need for updated regulations to reflect the changing landscape of online securities offerings. They emphasized that services necessary for online capital formation, such as publicity services and payment processes, did not exist when FINRA’s fee structure was developed. The fee structure should adapt to reflect these advancements.
OTC Markets, a securities marketplace for small-cap firms, called for updated guidance to clarify broker-dealers’ compliance obligations regarding unregistered securities. They believe that clearer regulations would enable more privately issued securities to enter the public market, increasing liquidity and easing capital raising from new investors.
GVC Capital criticized the overall complexity of the capital formation environment and suggested that regulatory definitions related to capital-raising transactions should be evaluated, harmonized, and improved. They also mentioned the overlapping and contradictory laws and regulations that hinder capital raising.
There was only one comment letter opposing improving access to capital and the private capital markets. PIABA, the Public Investors Advocate Bar Association, expressed concern that there are already too many private offerings and that increasing the pool of accredited investors would lead to more investors lacking sufficient understanding of risk. This comment reflects an anti-capital formation stance.
FINRA is currently reviewing the feedback received from these comment letters.
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