110. Funding Portal Application
(a) Member Application Process
(1) Definitions
(A) "Associated Person"
Solely for purposes of paragraph (a) of this Rule, the term "associated person" means any: (1) sole proprietor, partner, officer, director or manager of a funding portal, or other natural person occupying a similar status or performing similar functions; (2) natural person directly or indirectly controlling or controlled by such funding portal, or any employee of a funding portal, except that any person associated with a funding portal whose functions are solely clerical or ministerial shall not be included in the meaning of such term; or (3) partnership, corporation, association, or other legal entity controlled by or controlling the FP Applicant as defined in Funding Portal Rule 110(a)(1)(B).
(B) "FP Applicant"
The term "FP Applicant" means a person that applies for admission to FINRA as a funding portal member under paragraph (a)(3) of this Rule or a funding portal member that files an application for approval of a change in ownership or control under paragraph (a)(4) of this Rule.
(C) "Day"
The term "day" means calendar day. Solely for purposes of paragraph (a) of this Rule, in calculating a period of time, the day of the act (e.g., filing of application, service of notice) from which the period of time designated begins to run shall not be included; provided, however, that where the last day of a period so calculated is a Saturday, Sunday or day on which FINRA is otherwise closed, the period shall run until the end of the next business day.
(D) "Department"
The term "Department" means the Department of Member Regulation of FINRA.
(E) "District"
The term "district" means a district established by the FINRA Regulation Board.
(2) Service or Filing Date
(A) FINRA shall serve a notice or decision issued under paragraph (a) of this Rule by electronic delivery.
(B) For purposes of paragraph (a) of this Rule, service by FINRA or filing by an FP Applicant shall be deemed complete on the date recorded by FINRA's electronic systems for electronic communications or by other means of verification prescribed by FINRA.
(3) Application to be a Funding Portal Member
(A) An FP Applicant for FINRA membership shall submit its application to the Department by filing a Form FP-NMA in the manner prescribed by FINRA and an application fee.
(B) At the time an FP Applicant for FINRA membership submits its application pursuant to paragraph (a)(3)(A) of this Rule, the FP Applicant must submit information, in a format to be prescribed by FINRA, indicating whether the FP Applicant or any associated person (as defined in Funding Portal Rule 100(b)(1)) of the FP Applicant is subject to an event described in Section 3(a)(39) of the Exchange Act. The FP Applicant must keep this information current and must update such information promptly, but in any event not later than 10 days following any change in such information.
(4) Application for Approval of a Change in Ownership or Control
(A) A funding portal member shall file an application for prior approval of any change:
(i) in the equity ownership or partnership capital, LLC membership interest, or other ownership interest of the funding portal member that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity or partnership capital, LLC membership interest, or other ownership interest; or
(ii) of control persons of the funding portal member, other than the appointment or election of a natural person as an officer or director of the funding portal member in the normal course of business, regardless of whether such change occurred as a result of a direct or indirect change in the equity ownership, partnership capital, LLC membership interest, or other ownership interest in the funding portal member.
(B) A funding portal member shall submit its application for prior approval of any of the changes described in paragraph (a)(4)(A) of this Rule to the Department by filing a Form FP-CMA in the manner prescribed by FINRA and an application fee.
(5) Rejection of Application That Is Not Complete
If the Department determines within 14 days after the filing of an application pursuant to paragraphs (a)(3) or (a)(4) of this Rule that the application is not complete, the Department shall reject the application and deem it not to have been filed. In such case, within the 14 day period, the Department shall serve a written notice on the FP Applicant of the Department's determination and the reasons therefor. FINRA shall refund the application fee, less a processing fee which shall be retained by FINRA. If the FP Applicant determines to again seek funding portal membership or approval of a change in ownership or control, the FP Applicant shall submit a new application and fee under Funding Portal Rule 110(a).
(6) Request For Additional Documents Or Information
Within 14 days after the filing of an application filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule, the Department shall serve an initial request for any additional information or documents necessary to render a decision on the application, and the FP Applicant shall file any additional information and documents with the Department within 14 days after service of the Department's initial request. The Department may serve subsequent requests for additional information or documents at any time during the membership application process. Unless otherwise agreed by the Department and the FP Applicant, the FP Applicant shall file any additional information and documents with the Department within seven days after service of any subsequent request.
(7) Withdrawal of Application
If an FP Applicant withdraws an application filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule within 14 days after filing the application, FINRA shall refund the application fee, less a processing fee which shall be retained by FINRA. If the FP Applicant determines to again seek funding portal membership or approval of a change in ownership or control, the FP Applicant shall submit a new application and fee pursuant to paragraphs (a)(3) or (a)(4) of this Rule.
(8) Lapse of Application
(A) Absent a showing of good cause, an application filed under paragraphs (a)(3) or (a)(4) of this Rule shall lapse if an FP Applicant fails to:
(i) respond fully within 14 days after service of an initial written request, or within seven days after service of a subsequent written request, for information or documents under paragraph (a)(6) of this Rule, or within such other time period agreed to by the Department and the FP Applicant;
(ii) appear at or otherwise participate in a scheduled membership interview pursuant to paragraph (a)(9) of this Rule; or
(iii) file an executed membership agreement under paragraph (a)(11) of this Rule within seven days after service of the agreement, or within such other period agreed to by the Department and the FP Applicant.
(B) If an FP Applicant wishes to again seek membership or approval of a change in ownership or control subsequent to the lapse of an application pursuant to paragraph (a)(8)(A) of this Rule, then the FP Applicant shall be required to submit a new application in the manner prescribed in paragraph (a)(3) or (a)(4) of this Rule, respectively, including the timely submission of an application fee pursuant to Schedule A to the FINRA By-Laws. FINRA shall not refund any fee for a lapsed application.
(9) Membership Interview
(A) Requirement for an Interview
Before the Department serves its decision on an application for new membership in FINRA, the Department shall conduct one or more membership interviews with a representative or representatives of the FP Applicant. The membership interview(s) may be conducted by video conference or such other means as FINRA may specify.
(B) Service of Notice
At least five days before a membership interview, the Department shall serve on the FP Applicant a written notice that specifies the date and time of the interview and the representative or representatives of the FP Applicant who are required to participate in the interview. The Department shall serve the notice in a manner consistent with paragraph (a)(2) of this Rule. The FP Applicant and the Department may agree to a shorter or longer period for notice or a different method of service under this subparagraph.
(C) Time
Unless the Department directs otherwise for good cause shown, a membership interview shall be scheduled to occur within 30 days after the filing of an application or within 14 days after the filing of all additional information or documents requested, whichever is later.
(10) Standards for Granting or Denying Application
After considering an application filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule, other information and documents provided by the FP Applicant during the application process, other information and documents obtained by the Department, and the public interest and the protection of investors, the Department shall determine whether the FP Applicant meets each of the following standards, as applicable:
(A) The FP Applicant and its associated persons are capable of complying with applicable federal securities laws, the rules and regulations thereunder, and the Funding Portal Rules, including observing high standards of commercial honor and just and equitable principles of trade. In determining whether this standard is met, the Department shall take into consideration all information in its possession, including information regarding whether an FP Applicant or its associated persons:
(i) is subject to an event described in Section 3(a)(39) of the Exchange Act; and
(ii) is the subject of a pending, adjudicated, or settled regulatory action or investigation by the SEC, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization; an adjudicated or settled investment-related private civil action for damages or an injunction; or a criminal action (other than a minor traffic violation) that is pending, adjudicated, or that has resulted in a guilty or no contest plea of an FP Applicant or its associated persons.
(B) The FP Applicant has established all contractual or other arrangements and business relationships with banks, broker-dealers, clearing corporations, service bureaus, escrow agents, transfer agents, technology service providers, or others necessary to initiate the operations described in the FP Applicant's Form FP-NMA.
(C) The FP Applicant has a supervisory system that is reasonably designed to achieve compliance with applicable federal securities laws, the rules and regulations thereunder, and the Funding Portal Rules.
(D) The FP Applicant has fully disclosed and established through documentation all direct and indirect sources of funding.
(E) The FP Applicant has a recordkeeping system that enables the FP Applicant to comply with federal, state, and self-regulatory organization recordkeeping requirements.
(11) Granting or Denying Application
(A) If the Department determines that the FP Applicant meets each of the applicable standards in paragraph (a)(10) of this Rule, the Department shall grant the application filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule. The FP Applicant's approval for membership shall be contingent upon the FP Applicant's filing of an executed written membership agreement.
(B) If the Department determines that the FP Applicant does not meet one or more of the applicable standards in paragraph (a)(10) of this Rule, the Department shall deny the application.
(12) Decision
The Department shall serve a written decision on the application filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule within 60 days after the filing of the application or such later date as the Department and the FP Applicant have agreed in writing. If the Department denies the application, the decision shall explain in detail the reason for denial, referencing the applicable standard or standards in paragraph (a)(10) of this Rule. A decision that denies the application shall become effective upon service. The Department shall serve its decision and, as applicable, the membership agreement on the FP Applicant in accordance with paragraph (a)(2) of this Rule.
(13) Appeal of Department's Decision
(A) Request for Review; Final Action
(i) Within 14 days after service of a decision under paragraph (a)(12) of this Rule, an FP Applicant may file a written request for review with the National Adjudicatory Council. A request for review shall state with specificity why the FP Applicant believes that the Department's decision is inconsistent with the applicable standards set forth in paragraph (a)(10) of this Rule or otherwise should be set aside, and state whether a hearing is requested. An FP Applicant may withdraw its notice of appeal at any time by filing a written notice of withdrawal of appeal with the National Adjudicatory Council.
(ii) If the FP Applicant does not file a request for a review, abandons its appeal or withdraws its notice of appeal, the Department's decision shall constitute final action by FINRA.
(B) Transmission of Documents
Within 14 days after the filing of a request for review, the Department shall: transmit to the National Adjudicatory Council copies of all documents that were considered in connection with the Department's decision and an index to the documents; and serve on the FP Applicant a copy of such documents (other than those documents originally submitted by the FP Applicant) and a copy of the index.
(C) Appointment of Subcommittee
The National Adjudicatory Council or the Review Subcommittee as defined in FINRA Rule 9120 shall appoint a Subcommittee to participate in the review. The Subcommittee shall be composed of two or more persons who shall be current or past members of the National Adjudicatory Council or former Directors or Governors.
(D) Powers of Subcommittee
If a hearing is requested, the Subcommittee shall conduct the hearing. If a hearing is not requested, the Subcommittee may serve a notice directing that a hearing be held. If a hearing is not requested or directed, the Subcommittee shall conduct its review on the basis of the record developed before the Department and any written submissions made by the FP Applicant or the Department in connection with the request for review.
(E) Hearing
(i) Notice
If a hearing is requested or directed, the hearing shall be held within 45 days after the filing of the request with the National Adjudicatory Council or service of the notice by the Subcommittee. The National Adjudicatory Council shall serve written notice of the date and time of the hearing to the FP Applicant by email, facsimile or overnight courier not later than 14 days before the hearing.
(ii) Counsel
The FP Applicant and the Department may be represented by counsel at a hearing conducted pursuant to this Rule.
(iii) Evidence
Formal rules of evidence shall not apply to a hearing under this Rule. Not later than five days before the hearing, the FP Applicant and the Department shall exchange copies of their proposed hearing exhibits and witness lists and provide copies of the same to the National Adjudicatory Council. If the FP Applicant or the Department fails to provide copies of its proposed hearing exhibits or witness list within such time, the Subcommittee shall exclude the evidence or witnesses from the proceeding, unless the Subcommittee determines that good cause is shown for failure to comply with the production date set forth in this subparagraph.
(iv) Transcript
The hearing shall be recorded and a transcript prepared by a court reporter. A transcript of the hearing shall be available for purchase from the court reporter at prescribed rates. The FP Applicant, the Department, or a witness may seek to correct the transcript. Upon notice to the FP Applicant and the Department, the Subcommittee may direct the correction to the transcript as requested or sua sponte.
(F) Additional Information, Briefs
At any time during its consideration, the Subcommittee or the National Adjudicatory Council may direct the FP Applicant or the Department to file additional information or briefs. Any additional information or brief filed shall be provided to all parties before the National Adjudicatory Council renders its decision.
(G) Subcommittee Recommendation
The Subcommittee shall present a recommended decision in writing to the National Adjudicatory Council within 60 days after the date of the hearing held pursuant to subparagraph (E).
(H) Decision
After considering all matters presented in the review and the Subcommittee's recommended written decision, the National Adjudicatory Council may affirm, modify, or reverse the Department's decision or remand the membership proceeding with instructions.
(I) Discretionary Review by the FINRA Board
(i) The National Adjudicatory Council shall provide a copy of its decision to the Board. Alternatively, the National Adjudicatory Council may remand the membership proceeding with instructions. If the Board does not call the decision for review under paragraph (a)(13)(I)(ii) of this Rule, the National Adjudicatory Council shall issue the written decision after the expiration of the Board call for review period, and the decision shall constitute final FINRA action.
(ii) A Governor may call a membership proceeding for review by the Board at the next meeting of the Board that is at least 15 days after the date on which the Board received the decision. If a call for review is made, the Board shall review the membership proceeding not later than the next meeting of the Board. The Board shall issue a written decision affirming, modifying or reversing the National Adjudicatory Council's decision and setting forth its findings and conclusions. Alternatively, the Board may remand the membership proceeding with instructions. The decision shall constitute final FINRA action, unless the Board remands the membership proceeding.
(14) Application to the SEC for Review
A person aggrieved by final action of FINRA under paragraph (a) of this Rule may apply for review by the SEC pursuant to Section 19(d)(2) of the Exchange Act. The filing of an application for review shall not stay the effectiveness of a decision constituting final action of FINRA, unless the SEC otherwise orders.
(15) Filing of Misleading Information as to Membership or Registration
No funding portal member or person associated with a funding portal member shall file with FINRA information with respect to membership or registration that is incomplete or inaccurate so as to be misleading, or that could in any way tend to mislead, or shall fail to correct such filing after notice thereof.
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Adopted by SR-FINRA-2015-040 eff. Jan. 29, 2016. Selected Notice: 16-06. |