[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Proposed Rules]
[Pages 19086-19094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07345]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Parts 1010 and 1023

RIN 1506-AB29


Amendments to the Definition of Broker or Dealer in Securities

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN, a bureau of the Department of the Treasury, is 
proposing amendments to the definitions of ``broker or dealer in 
securities'' and ``broker-dealer'' under the regulations implementing 
the Bank Secrecy Act. This rulemaking would amend those definitions 
explicitly to include funding portals that are involved in the offering 
or selling of crowdfunding securities pursuant to section 4(a)(6) of 
the Securities Act of 1933. The consequence of those amendments would 
be that funding portals would be required to implement policies and 
procedures reasonably designed to achieve compliance with the Bank 
Secrecy Act requirements currently applicable to brokers or dealers in 
securities. The proposal to specifically require funding portals to 
comply with the Bank Secrecy Act regulations is intended to help 
prevent money laundering, terrorist financing, and other financial 
crimes.

DATES: Written comments on this Notice of Proposed Rulemaking 
(``NPRM'') must be submitted on or before June 3, 2016.

ADDRESSES: Comments may be submitted, identified by Regulatory 
Identification Number (RIN) 1506-AB29, by any of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 19087]]

Include RIN 1506-AB29 in the submission. Refer to Docket Number FINCEN-
2014-0005.
     Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include RIN 
1506-AB29 in the body of the text.
    Please submit comments by one method only. Comments submitted in 
response to this NPRM will become a matter of public record. Therefore, 
you should submit only information that you wish to make publicly 
available.
    Inspection of comments: The public dockets for FinCEN can be found 
at Regulations.gov. Federal Register notices published by FinCEN are 
searchable by docket number, RIN, or document title, among other 
things, and the docket number, RIN, and title may be found at the 
beginning of the notice. FinCEN uses the electronic, Internet-
accessible dockets at Regulations.gov as their complete, official-
record docket; all hard copies of materials that should be in the 
docket, including public comments, are electronically scanned and 
placed in the docket. In general, FinCEN will make all comments 
publicly available by posting them on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: FinCEN Resource Center at 1-800-767-
2825 or 1-703-905-3591 (not a toll free number) and select option 3 for 
regulatory questions. Email inquiries can be sent to [email protected].

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Provisions

    The Currency and Foreign Transactions Reporting Act of 1970, as 
amended by the Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001 (Public Law 107-56) (``USA PATRIOT 
Act'') and other legislation, which legislative framework is commonly 
referred to as the Bank Secrecy Act (``BSA''),\1\ authorizes the 
Secretary of the Treasury (``Secretary'') to require financial 
institutions to keep records and file reports that ``have a high degree 
of usefulness in criminal, tax, or regulatory proceedings, or in the 
conduct of intelligence or counterintelligence activities, including 
analysis, to protect against international terrorism.'' \2\ In 
addition, the Secretary is authorized to impose anti-money laundering 
(``AML'') program requirements on financial institutions.\3\ The 
Secretary has delegated to the Director of FinCEN the authority to 
implement, administer, and enforce compliance with the BSA and its 
implementing regulations.\4\
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    \1\ The BSA is codified at 12 U.S.C. 1829b and 1951-1959, and 31 
U.S.C. 5311-5314 and 5316-5332 and notes thereto, with implementing 
regulations at 31 CFR Chapter X. See 31 CFR 1010.100(e).
    \2\ 31 U.S.C. 5311.
    \3\ 31 U.S.C. 5318.
    \4\ Treasury Order 180-01 (Jul. 1, 2014).
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    The BSA was amended by the Annunzio-Wylie Anti-Money Laundering Act 
of 1992 (Pub. L. 102-550) (``Annunzio-Wylie'').\5\ Annunzio-Wylie 
authorizes the Secretary to issue regulations requiring financial 
institutions to implement programs to guard against money laundering, 
maintain records considered useful in criminal, tax, or regulatory 
investigations or proceedings, and report suspicious transactions.\6\ 
When prescribing minimum standards for AML programs, FinCEN must 
``consider the extent to which the requirements imposed under [the AML 
program requirement] are commensurate with the size, location, and 
activities of the financial institutions to which such regulations 
apply.'' \7\ Pursuant to these authorities, FinCEN has issued 
regulations requiring brokers or dealers in securities to report 
suspicious transactions and implement AML programs.\8\
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    \5\ 31 U.S.C. 5318(g) was added to the BSA by section 1517 of 
the Annunzio-Wylie Act; it was expanded by section 403 of the Money 
Laundering Suppression Act of 1994 (the ``Money Laundering 
Suppression Act''), Title IV of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Public Law 103-325, to require 
designation of a single government recipient for reports of 
suspicious transactions. As amended by the USA PATRIOT Act, 
subsection (g)(1) states generally that ``the Secretary may require 
any financial institution, and any director, officer, employee, or 
agent of any financial institution, to report any suspicious 
transaction relevant to a possible violation of law or regulation.''
    \6\ Annunzio-Wylie Anti-Money Laundering Act, Title XV of the 
Riegle Community Development and Regulatory Improvement Act of 1994, 
Public Law 103-325; See also 31 U.S.C. 5318(g).
    \7\ See section 352(c) of Title III of the USA PATRIOT Act of 
2001, Pub. L. 107-56, 115 Stat. 272, 322 (2001) (codified at 31 
U.S.C. 5318(h)).
    \8\ 31 CFR 1023.320.
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II. Background Information

A. The Effect of the JOBS Act and the Securities and Exchange 
Commission Crowdfunding Rule on the Scope of the Definitions of Brokers 
or Dealers in Securities and Broker-Dealers Under the Implementing 
Regulations of the BSA

    The Jumpstart Our Business Startups Act (the ``JOBS Act''), enacted 
on April 5, 2012, establishes the foundation for a regulatory structure 
for startups and small businesses to raise funds by offering and 
selling securities through crowdfunding \9\ without having to register 
the securities with the Securities and Exchange Commission (``SEC'' or 
``Commission'') or state securities regulators.\10\ Crowdfunding is a 
new and evolving method to raise money using the Internet by seeking 
small individual contributions from a large number of people. The 
crowdfunding provisions of the JOBS Act were designed to help startups 
and small businesses raise funds by making relatively low-dollar 
offerings of securities less costly. They also permit Internet-based 
platforms known as ``funding portals,'' acting as intermediaries, to 
facilitate the offer or sale of securities without having to register 
with the SEC as brokers.
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    \9\ Crowdfunding is the use of the Internet to raise money 
through small contributions from a large number of investors. Not 
all crowdfunding involves the offering or selling of securities, 
though in some instances it does. This NPRM is meant to address only 
instances in which crowdfunding involves facilitating an offer or 
sale of securities to raise money for a business pursuant to section 
4(a)(6) of the Securities Act. For example, this NPRM is not 
addressing instances where crowdfunding is utilized to solicit 
donations from the general public or a targeted group.
    \10\ Public Law 112-106, 126 Stat. 306 (2012).
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    Title III of the JOBS Act amends the Securities Act of 1933 and the 
Securities Exchange Act of 1934 to create a new exemption for offerings 
of crowdfunded securities.\11\ Specifically, the JOBS Act amends 
section 4 of the Securities Act of 1933 to exempt issuers from the 
registration requirements of section 5 of that Act when they offer and 
sell up to $1 million in securities, provided that, among other things, 
individual investments do not exceed certain thresholds (e.g., $2,000 
to $100,000 in a 12-month period) based on the investor's annual income 
or net worth. Additionally, issuers must use the services of an 
intermediary that is either a broker registered with the SEC or a 
``funding portal'' registered with the SEC.\12\
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    \11\ Id. See also sections 4(a)(6) and 4A of the Securities Act 
of 1933 (15 U.S.C. 77a et seq.), and section 3(a)(80) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
    \12\ Id.
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    The JOBS Act also amends the Securities Exchange Act of 1934 to 
include a definition of funding portals in section 3(a)(80).\13\ The 
JOBS Act defines a funding portal as any person acting as an 
intermediary in a transaction involving the offer or sale of securities 
for the account of others, solely pursuant to section 4(a)(6) of the 
Securities Act that does not: (i) Offer investment advice or 
recommendations; (ii) solicit purchases, sales, or offers to buy 
securities offered or displayed on its Web site or portal; (iii) 
compensate employees, agents, or other persons for such solicitation or 
based on the sale of securities displayed or referenced on its

[[Page 19088]]

Web site or portal; (iv) hold, manage, possess, or otherwise handle 
investor funds or securities; or (v) engage in such other activities as 
the SEC, by rule, determines appropriate.\14\
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    \13\ See section 3(a)(80) of the Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.).
    \14\ Id.
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    In addition, the JOBS Act adds new section 3(h) to the Securities 
Exchange Act of 1934, which requires the SEC to exempt, by rule, 
conditionally or unconditionally, a registered funding portal from the 
requirement to register with the SEC as a broker.\15\ The funding 
portal would, however, remain subject to the SEC's examination, 
enforcement, and rulemaking authority. The funding portal also must 
become a member of a national securities association that is registered 
under section 15A of the Securities Exchange Act.\16\ As required by 
the JOBS Act, the SEC issued a notice of proposed rulemaking 
(``Crowdfunding NPRM'') on November 5, 2013 proposing the regulatory 
framework for intermediaries facilitating the offer or sales of 
crowdfunded securities,\17\ which it finalized largely as proposed on 
October 30, 2015.\18\
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    \15\ Id. Generally, a third party that operates a Web site to 
effect the purchase and sale of securities for the account of others 
generally would, under existing regulations, be required to register 
with the Commission as a broker-dealer and comply with the laws and 
regulations applicable to broker-dealers.
    \16\ Id.
    \17\ See 78 FR 66428 (Nov. 5, 2013).
    \18\ See 80 FR 71387 (Nov. 16, 2015).
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    Current BSA regulations at Part 1023 of Chapter X of Title 31 of 
the CFR (the Part that imposes the specific requirements to maintain an 
anti-money laundering program and to file suspicious activity reports) 
define ``broker-dealers'' by reference to persons ``registered, or 
required to be registered, as a broker or dealer with the Commission 
under the Securities Exchange Act of 1934.'' \19\ As described above, a 
registered funding portal would not be a person required to be 
registered as a broker with the Commission because a funding portal 
would be exempt from broker registration, and thus would not be subject 
to BSA regulations under the current BSA definition of ``broker-
dealers.'' In its Crowdfunding NPRM, the SEC sought to address this 
issue through its proposed rule 403(b). Specifically, the SEC proposed 
that ``[n]otwithstanding [the exemption from registration as a broker 
or dealer in securities], for purposes of 31 CFR chapter X, a funding 
portal is `required to be registered' as a broker or dealer with the 
Commission under the Exchange Act.'' \20\ At the final stage of its 
Crowdfunding rulemaking, the SEC determined ``that it would be more 
appropriate to work with other regulators to develop consistent and 
effective AML obligations for funding portals,'' and chose not to adopt 
proposed rule 403(b).\21\ Now that the SEC has finalized its 
Crowdfunding rule exempting funding portals from having to register as 
brokers or dealers in securities, FinCEN is proposing this rulemaking 
to ensure that registered funding portals are subject to BSA 
regulations.
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    \19\ 31 CFR 1023.100.
    \20\ See 78 FR 66428, 66484 (Nov. 5, 2013).
    \21\ See 80 FR 71387, 71471 (Nov. 16, 2015).
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    There are good reasons to ensure that funding portals are subject 
to BSA regulations. As the SEC has recognized, funding portals would 
continue to function as brokers regardless of the statutory provisions 
exempting them from registering as brokers under the Exchange Act.\22\ 
Specifically, although the JOBS Act prohibits a funding portal from 
holding, managing, possessing, or handling customer funds or 
securities, a funding portal's business activity is essentially similar 
to that of introducing brokers, which typically do not accept cash from 
customers or maintain custody of customer securities,\23\ but yet are 
subject to the BSA regulations. As such, funding portals raise at least 
the same degree of AML and counter financing of terrorism risk as some 
other broker-dealers registered with the SEC, and should be regulated 
commensurately under the BSA.
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    \22\ See 78 FR 66428, 66483-66484.
    \23\ See infra note 20.
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    Moreover, as the SEC noted in its November 5, 2013 Crowdfunding 
NPRM, there is reason to ``expect that funding portals would often 
facilitate offerings of microcap or low-priced securities, which may be 
more susceptible to fraud and market manipulation. We believe that 
imposing the monitoring and reporting requirements of the BSA on 
funding portals would establish a valuable oversight, prevention and 
detection mechanism.'' \24\ In a 2010 published report, the Financial 
Action Task Force also identified low-priced and privately-placed 
securities as potential vehicles for laundering money.
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    \24\ See78 FR 66428, 66490-66491 (Nov. 5, 2013).
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    These securities pose a money laundering risk because they are 
often used to generate illicit assets through market manipulation, 
insider trading, and fraud.\25\ In addition, unlawfully acquired assets 
can be used to purchase these securities in order to resell them and 
create the appearance of legitimately sourced funds.\26\ It is also 
possible that issuers relying on the exemption in section 4(a)(6) may 
be shell companies, which have been associated with a high risk of 
money laundering.\27\ Congress recognized and expressed concern about 
these money laundering and financial crimes risks, which is why, in 
part, it chose to require that securities offered and sold in reliance 
on section 4(a)(6) be sold through a regulated intermediary.\28\
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    \25\ Id. See also Financial Action Task Force (``FATF''), Money 
Laundering and Terrorist Financing in the Securities Sector 20-21 
(Oct. 2009) (``FATF Typology'') (discussing the money laundering 
risks associated with low priced securities, private issuers, and 
shell companies). As explained in the FATF Typology, illicit actors 
``can either use existing shares that are already publicly traded or 
start a shell company for the express purpose of engaging in those 
illicit activities. In addition, criminal organizations also have 
been known to use illicit assets generated outside the securities 
industry to engage in market manipulation and fraud.''
    \26\ See 78 FR 66428, 66490-66491 (Nov. 5, 2013). ``Moreover, 
criminal organizations can also initially invest in a private 
company that they can then use as a front company for commingling 
illicit and legitimate assets. They can then take this company 
public through an offering in the public securities markets, thus 
creating what appear to be legitimate offering revenues. 
Alternatively, criminal organizations can acquire a publicly traded 
company and use it to launder illicit assets.'' The FATF Typology 
further highlighted the risk of shell companies that, for example, 
``can be established to accept payments from criminal organizations 
for non-existent services. These payments, which appear legitimate, 
can be deposited into depository or brokerage accounts and either 
wire transferred out of a jurisdiction or used to purchase 
securities products that are easily transferable or redeemable.''
    \27\ See 78 FR 66428, 66490-66491 (Nov. 5, 2013). See also, 
e.g., Joint Release, Guidance on Obtaining and Retaining Beneficial 
Ownership Information, FIN-2010-G001 (Mar. 5, 2010) (noting that 
criminals, money launderers, tax evaders, and terrorists may exploit 
the privacy and confidentiality surrounding some business entities, 
including shell companies and other vehicles designed to conceal the 
nature and purpose of illicit transactions and the identities of the 
persons associated with them); Financial Crimes Enforcement Network, 
The Role of Domestic Shell Companies in Financial Crime and Money 
Laundering: Limited Liability Companies (Nov. 2006), available at 
http://www.fincen.gov/news_room/rp/files/LLCAssessment_FINAL.pdf.
    \28\ See 78 FR 66428, 66490-66491 (Nov. 5, 2013). See also 158 
Cong. Rec. S1781 (daily ed. Mar. 19, 2012) (statement of former Sen. 
Carl Levin) (``Senior citizens, state securities regulators, and 
others worry that this will give rise to money laundering and fraud 
risks.'').
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    FinCEN believes that funding portals could play a critical role in 
detecting, preventing, and reporting money laundering and other illicit 
financing, such as market manipulation and fraud. As described above, 
funding portals should be subject to normal BSA obligations. A funding 
portal, like an introducing broker, is in the best position to know its 
customers, and to identify and monitor for suspicious and potentially 
illicit activity at the individual customer level, as compared to other 
required participants in the transaction such as the qualified third

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party, which may not see such activity given its less direct contact 
with individual customers.\29\ FinCEN understands that the JOBS Act was 
designed to provide regulatory relief and ease the funding gap that 
startups and small businesses often face, while providing significant 
investor protections. But in addition to investor protections, any 
regulatory structure for securities-based crowdfunding through the 
Internet must also address the risk of money laundering and other 
financial crimes presented by the misuse of crowdfunding transactions. 
FinCEN agrees with the SEC that a funding portal engaging in the 
business of effecting securities transactions for the accounts of 
others through crowdfunding is acting as a broker-dealer, despite the 
exemption from registration under the Exchange Act that Congress 
directed the SEC to implement, and that this new type of broker or 
dealer in securities should be subject to supervision under the BSA 
regulation.
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    \29\ See 78 FR 66428, 66490. See also, e.g., National 
Association Of Securities Dealers (``NASD'') (n/k/a ``FINRA''), NASD 
Provides Guidance To Member Firms Concerning Anti-Money Laundering 
Compliance Programs Required by Federal Law, Special Notice to 
Members 02-21 (Apr. 2002), available https://www.finra.org/Industry/Regulation/Notices/2002/p003703 (stating that ``introducing brokers 
generally are in the best position to `know the customer,' and thus 
to identify potential money laundering concerns at the account 
opening stage, including verification of the identity of the 
customer and deciding whether to open an account for a customer.'').
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    For all of these reasons, in addition to the provisions finalized 
in the SEC's Crowdfunding rulemaking, FinCEN believes that it is 
further appropriate, in response to changes in the registration 
requirement in the JOBS Act, to amend the BSA definitions of a broker 
or dealer in securities and broker-dealer to explicitly include funding 
portals, registered or required to be registered as such, with the SEC. 
Explicitly requiring funding portals to comply with the BSA's 
requirements, consistent with registered brokers or dealers in 
securities, helps ensure consistent regulation of brokers or dealers in 
securities with fewer opportunities for regulatory gaps, which could be 
exploited by financial criminals. Because the BSA and its implementing 
rules are risk-based, we expect that funding portals would design 
programs commensurate with their limited business model and not the 
more comprehensive programs established by full service broker-dealers.

B. Overview of the Current Regulatory Provisions Regarding Brokers or 
Dealers in Securities and Broker-Dealers

    On October 26, 2001, the President signed into law the USA PATRIOT 
Act of 2001. Title III of the USA PATRIOT Act makes a number of 
amendments to the anti-money laundering provisions of the BSA to 
promote the prevention, detection, and prosecution of international 
money laundering and the financing of terrorism. The statutory mandate 
that all financial institutions, which include brokers or dealers in 
securities, establish an AML program and comply with the BSA 
regulations is a key element in the nation's effort to detect and 
prevent money laundering and the financing of terrorism. If 
implemented, this proposal would explicitly incorporate a funding 
portal's activities within the existing definition of brokers or 
dealers in securities, and require funding portals to comply with the 
full range of requirements outlined in 31 CFR 1023 applicable to 
broker-dealers, including: (1) AML program; (2) Suspicious Activity 
Report; (3) Customer Identification Program; (4) Currency Transaction 
Report; (5) Recordkeeping and Travel rules; (6) Information Sharing 
(section 314); (7) Due Diligence for Correspondent Accounts for Foreign 
Financial Institutions and Private Banking Accounts; (8) Prohibition on 
Correspondent Accounts for Foreign Shell Banks; and (9) Special 
Measures (section 311).\30\ The following are brief descriptions of the 
regulations that would apply to funding portals if this rulemaking is 
finalized as proposed.
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    \30\ See 31 CFR 1023.210, 1023.220, 1023.310, 1023.320, 
1023.410, 1023.520, 1023.610, and 1023.630.
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1. Anti-Money Laundering Program
    Section 352(a) of the USA PATRIOT Act amended section 5318(h) of 
the BSA. Section 5318(h)(1) requires every financial institution 
defined in 31 U.S.C. 5312(a)(2), which are also covered in 31 CFR, to 
establish an AML program that includes, at minimum, (1) the development 
of internal policies, procedures, and controls; (2) the designation of 
a compliance officer; (3) an ongoing employee training program; and (4) 
an independent audit function to test programs.\31\ The BSA defines the 
term ``financial institution'' to include, in part, ``a broker or 
dealer in securities.'' \32\ Currently, a broker or dealer in 
securities that implements and maintains an AML program that complies 
with the rules, regulations, or requirements of its self-regulatory 
organization (``SRO'') is deemed to satisfy the requirement of section 
5318 (h)(1) of the BSA.\33\
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    \31\ 31 U.S.C. 5318(h)(1)(A-D).
    \32\ 31 U.S.C. 5312(a)(2)(G).
    \33\ 31 CFR 1023.210. See also Notice of Proposed Rulemaking--
Customer Due Diligence Requirements for Financial Institutions 79 FR 
45151 (Aug. 4, 2014). Treasury proposed rules to clarify and 
strengthen customer due diligence requirements, to include a new 
requirement to identify beneficial owners of legal entity customers. 
The proposed changes in that notice of proposed rulemaking may have 
an impact on what is proposed in this notice.
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2. Suspicious Activity Report
    FinCEN has promulgated Suspicious Activity Report (``SAR'') 
regulations for a number of financial institutions. These include 
banks, casinos, money services businesses, brokers or dealers in 
securities, mutual funds, insurance companies, and futures commission 
merchants and introducing brokers in commodities.\34\ 31 CFR 1023.320 
contains the rules setting forth the obligation of broker-dealers in 
securities to report suspicious transactions. Specifically, brokers or 
dealers in securities are required to report a transaction that is 
conducted or attempted by, at, or through a broker-dealer and involves 
or aggregates to at least $5,000 in funds or other assets, and the 
broker-dealer knows, suspects, or has reason to suspect that the 
transaction (or a pattern of transactions of which the transaction is a 
part) (i) involves funds derived from illegal activity or is intended 
or conducted to hide or disguise funds or assets derived from illegal 
activity; (ii) is designed, whether through structuring or other means, 
to evade the requirements of the BSA; (iii) has no business or apparent 
lawful purpose, and the broker or dealer in securities knows of no 
reasonable explanation for the transaction after examining the 
available facts; or (iv) involves the use of the broker-dealer to 
facilitate criminal activity.
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    \34\ See 31 CFR 1020.210, 1020.320, 1021.210, 1021.320, 
1022.210, 1022.320, 1023.210, 1023.320, 1024.210, 1024.320, 
1025.210, 1025.320, 1026.210, and 1026.320, respectively.
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3. Currency Transaction Report
    The Secretary was granted authority in 1970, with the enactment of 
31 U.S.C. 5313, to require financial institutions to report currency 
transactions exceeding $10,000. The information collected on the 
Currency Transaction Report is required to be provided pursuant to 31 
U.S.C. 5313. The implementing regulation for brokers or dealers in 
securities can be found at 31 CFR 1023.310.

[[Page 19090]]

4. Records To Be Made and Retained by Financial Institutions
    On January 3, 1995, FinCEN and the Board of Governors of the 
Federal Reserve System (``the Board'') jointly issued a rule that 
requires banks and nonbank financial institutions to collect and retain 
information on certain funds transfers and transmittals of funds (the 
``recordkeeping rule'').\35\ At the same time, FinCEN issued the 
``travel rule,'' which requires banks and nonbank financial 
institutions to include with a transmittal order certain information on 
funds transfers and transmittals of funds sent to other banks or 
nonbank financial institutions.\36\
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    \35\ 31 CFR 1020.410(a) (recordkeeping requirements for banks); 
31 CFR 1010.410(e) (recordkeeping requirements for nonbank financial 
institutions). The Board revised its Regulation S (12 CFR part 219) 
to incorporate by reference the recordkeeping rule codified in Title 
31 of the CFR, as well as to impose a five-year record-retention 
requirement with respect to the recordkeeping requirements.
    \36\ 31 CFR 1010.410(f).
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    The recordkeeping and travel rules provide uniform recordkeeping 
and transmittal requirements for financial institutions, and are 
intended to help law enforcement and regulatory authorities detect, 
investigate, and prosecute money laundering and other financial crimes 
by preserving an information trail about persons sending and receiving 
funds through the funds transfer system.
    In general, the recordkeeping rule requires financial institutions 
to retain certain information on transmittals of funds of $3,000 or 
more, which must be retrievable and available upon request to FinCEN, 
to law enforcement, and to regulators to whom FinCEN has delegated the 
BSA compliance examination authority. Under the travel rule, a 
financial institution acting as the transmittor's financial institution 
must obtain and include in the transmittal order certain information on 
transmittals of funds of $3,000 or more.
5. Customer Identification Program
    31 CFR 1023.220 sets forth the customer identification program 
(``CIP'') requirements for brokers or dealers in securities, which 
would include funding portals with the proposed amendments. Under the 
rule published jointly with the SEC,\37\ brokers or dealers in 
securities must establish a written CIP that, at a minimum, includes 
procedures for: (1) Obtaining customer identifying information from 
each customer prior to account opening; (2) verifying the identity of 
each customer to the extent reasonable and practicable, within a 
reasonable time before or after account opening; (3) making and 
maintaining a record of obtained information relating to identity 
verification; (4) determining, within a reasonable time after account 
opening or earlier, whether a customer appears on any list of known or 
suspected terrorist organizations designated by Treasury; and (5) 
providing each customer with adequate notice, prior to opening an 
account, that information is being requested to verify the customer's 
identity.\38\ Under certain defined circumstances, brokers or dealers 
in securities may rely on the performance of another financial 
institution that also is subject to an AML compliance program rule to 
fulfill some or all of the requirements of the broker-dealer's CIP.\39\
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    \37\ 68 FR 25113 (May 9, 2003).
    \38\ 31 CFR 1023.220(a)(6).
    \39\ Id.
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6. Special Information Procedures To Deter Money Laundering and 
Terrorist Activity
    31 CFR 1023.500 states generally that brokers or dealers in 
securities are covered by the special information procedures to detect 
money laundering and terrorist activity requirements.\40\ Sections 
1010.520 and 1010.540 implement sections 314(a) and 314(b) of the USA 
PATRIOT Act, respectively.
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    \40\ These requirements are set forth and cross referenced in 
sections 1023.520 (cross referencing to 31 CFR 1010.520) and 
1023.540 of 31 CFR (cross-referencing to 31 CFR 1010.540).
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    Under the section 314(a) requirements, brokers or dealers in 
securities must respond to requests for information made by FinCEN on 
behalf of Federal, state, and local law enforcement agencies, or a 
similar request from FinCEN on its own behalf, on behalf of certain 
components of Treasury, or on behalf of certain foreign law enforcement 
agencies.\41\ Upon receiving such a request, a broker or dealer in 
securities is required to search its records to determine whether it 
has accounts for, or has engaged in transactions with, any specified 
individual, entity, or organization.\42\ Under the regulation 
implementing section 314(b), brokers or dealers in securities are 
authorized to share information with one another, under a safe harbor 
that offers protections from liability, in order to better identify and 
report potential money laundering or terrorist activities.\43\
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    \41\ 31 CFR 1010.520(b).
    \42\ 31 CFR 1010.520(b)(3).
    \43\ 31 CFR 1023.540.
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7. Due Diligence Anti-Money Laundering Programs for Private Banking and 
Certain Foreign Accounts
    31 CFR 1023.600 generally states that brokers or dealers in 
securities are subject to the special standards of diligence, 
prohibitions, and special measures requirements.\44\ Sections 1010.610, 
1010.620, and 1010.630 implement section 312 of the USA PATRIOT Act and 
generally apply to any financial institution listed in 31 U.S.C. 
5312(a)(2). Sections 1023.610 and 1023.620 require U.S. financial 
institutions, including brokers or dealers in securities, to establish 
risk-based due diligence policies, procedures, and controls reasonably 
designed to detect and report money laundering through correspondent 
accounts and private banking accounts that U.S. financial institutions 
establish or maintain for non-U.S. persons.
---------------------------------------------------------------------------

    \44\ These requirements are set forth and cross referenced in 
sections 1023.610 (cross referencing to 31 CFR 1010.610), 1023.620 
(cross-referencing to 31 CFR 1010.620), and 1023.630 of 31 CFR 
(cross-referencing to 31 CFR 1010.630).
---------------------------------------------------------------------------

8. Prohibition on Correspondent Accounts for Foreign Shell Banks; 
Records Concerning Owners of Foreign Banks and Agents for Service of 
Legal Process
    Section 313 of the USA PATRIOT Act amended the BSA by adding 
subsection (j) to 31 U.S.C. 5318. Sections 1010.630 and 1023.630 
implement this provision and set forth the requirements for brokers and 
dealers in securities. The regulations prohibit covered financial 
institutions from providing correspondent accounts in the United States 
to foreign shell banks (i.e., banks without a physical presence in any 
country) and to take reasonable steps to ensure that correspondent 
accounts provided to foreign banks are not being used to provide 
banking services to foreign shell banks indirectly.\45\ The statutory 
and regulatory definitions of covered financial institutions include a 
broker or dealer in securities.\46\ Brokers and dealers in securities 
must comply with this regulation with respect to any account they 
provide in the United States to a foreign bank that permits the foreign 
bank to engage in securities transactions, funds transfers, or other 
financial transactions through that account.
---------------------------------------------------------------------------

    \45\ See 31 CFR 1010.630.
    \46\ See 31 U.S.C. 5318(j)(1) and 5312(a)(2).
---------------------------------------------------------------------------

    Section 319(b) of the USA PATRIOT Act amended the BSA by adding 
subsection (k) to 31 U.S.C. 5318, which requires any covered financial 
institution that provides a

[[Page 19091]]

correspondent account to a foreign bank to maintain records of the 
foreign bank's owners and any agent in the United States designated to 
accept service of legal process for records regarding the correspondent 
account. While the rule does not prescribe the manner in which a 
covered financial institution must obtain the required information, it 
does provide a safe harbor if a covered financial institution obtains 
from the foreign bank the model certification provided on FinCEN's 
public Web site.\47\ The rule requires covered financial institutions 
to verify the information previously provided by each foreign bank for 
which it maintains a correspondent account at least once every two 
years.
---------------------------------------------------------------------------

    \47\ Certification Regarding Correspondent Accounts for Foreign 
Banks, available at: http://www.fincen.gov/forms/files/Certification%20Regarding%20Correspondent%20Accounts%20for%20Foreign%20Banks.pdf; Certification Regarding Correspondent Accounts for 
Foreign Banks, available at: http://www.fincen.gov/forms/files/Recertification%20Regarding%20Correspondent%20Accounts%20for%20Foreign%20Banks.pdf.
---------------------------------------------------------------------------

9. Special Measures Under Section 311 of the USA PATRIOT Act
    Section 311 of the USA PATRIOT Act (``section 311'') added section 
5318A to the BSA, granting FinCEN the authority to require domestic 
financial institutions and financial agencies to take certain ``special 
measures'' upon finding that reasonable grounds exist for concluding 
that a foreign jurisdiction, institution, class of transaction, or type 
of account is of ``primary money laundering concern.'' To address the 
specific money laundering risks, section 311 provides a range of 
special measures that can be imposed individually, jointly, in any 
combination, and in any sequence.\48\
---------------------------------------------------------------------------

    \48\ Available special measures include requiring: (1) 
Recordkeeping and reporting of certain financial transactions; (2) 
collection of information relating to beneficial ownership; (3) 
collection of information relating to certain payable-through 
accounts; (4) collection of information relating to certain 
correspondent accounts; and (5) prohibition or conditions on the 
opening or maintaining of correspondent or payable through accounts. 
31 U.S.C. 5318A(b)(l)-(5). For a complete discussion of the range of 
possible countermeasures, see 68 FR 18917 (April 17, 2003) 
(proposing special measures against Nauru).
---------------------------------------------------------------------------

    Under 31 CFR 1010.810(a), ``[o]verall authority for enforcement and 
compliance, including coordination and direction of procedures and 
activities of all other agencies exercising delegated authority under 
this chapter, is delegated [by the Secretary] to the Director, 
FinCEN.'' In turn, Federal functional regulators have been delegated 
authority to examine certain financial institutions they oversee for 
compliance with FinCEN's regulations. FinCEN has delegated to the SEC 
the authority to examine brokers or dealers in securities, which would 
include funding portals, for compliance with FinCEN regulations.\49\
---------------------------------------------------------------------------

    \49\ 31 CFR 1010.810(b)(6).
---------------------------------------------------------------------------

III. Section-by-Section Analysis

    This NPRM proposes to revise the regulations implementing the BSA 
by amending the definition of ``broker or dealer in securities'' and 
its synonymous term ``broker-dealer'' to specifically include funding 
portals that are involved in the offering or selling of crowdfunding 
securities pursuant to section 4(a)(6) of the Securities Act of 1933 
(15 U.S.C. 77d(a)(6)). These terms are defined in three different 
places, and phrased slightly differently for each, but are 
substantively the same:
     In 31 CFR 1010.100(h), a ``broker or dealer in 
securities'' is defined as ``[a] broker or dealer in securities, 
registered or required to be registered with the Securities and 
Exchange Commission under the Securities Exchange Act of 1934, except 
persons who register pursuant to section 15(b)(11) of the Securities 
Exchange Act of 1934.''
     31 CFR 1010.605(e)(1)(viii) and (e)(2)(viii) refer to 
``[a] broker or dealer in securities registered, or required to be 
registered, with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934.''
     In 31 CFR 1023.100(b), a ``broker-dealer'' is defined to 
mean ``a person registered or required to be registered as a broker or 
dealer with the Commission under the Securities Exchange Act of 1934 
(15 U.S.C. 77a et seq.), except persons who register pursuant to 15 
U.S.C. 78o(b)(11).'' \50\
---------------------------------------------------------------------------

    \50\ FinCEN is also amending this section of the rule to reflect 
the correct citation of 15 U.S.C. 78a et seq. currently published as 
15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

    FinCEN proposes to amend these definitions by adding to each the 
phrase ``a person registered, or required to be registered, as a 
funding portal with the Securities and Exchange Commission under 
section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)).'' 
FinCEN further proposes to make technical amendments to each definition 
to create one standard definition of the terms ``broker or dealer in 
securities'' and ``broker-dealer'' to be used throughout the 
regulations.

IV. Request for Comment

    FinCEN invites comment on any and all aspects of the NPRM, and 
specifically seeks comments on the following questions:
     Is the application of all BSA regulations currently 
covering brokers or dealers in securities to funding portals 
appropriate?
     Are there exceptions to the regulations that should be 
granted to funding portals? If so, why would any such exceptions be 
appropriate?

V. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. It has been determined that this proposed rule is a 
significant regulatory action, although not economically significant, 
for purposes of Executive Orders 12866 and 13563.

VI. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that may result in expenditure by the state, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 202 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. Since there is no change to 
the requirements imposed under existing regulations, FinCEN has 
determined that it is not required to prepare a written statement under 
section 202.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') (5 U.S.C. 601 et seq.) 
requires that a regulation that has a significant economic impact on a 
substantial number of small entities, small businesses, or small 
organizations must include an initial regulatory flexibility analysis 
describing the regulation's impact on small entities. Such an analysis 
need not be undertaken if the agency has certified that the regulation 
will not have a significant economic

[[Page 19092]]

impact on a substantial number of small entities (5 U.S.C. 605(b)).
    Section 601(3) of the RFA states that the term ``small business'' 
has the same meaning as the term ``small business concern'' under 
section 3 of the Small Business Act, unless an agency, after 
consultation with the Office of Advocacy of the Small Business 
Administration and after opportunity for public comment, establishes 
one or more definitions of such term which are appropriate for the 
activities of the agency and publishes such definition(s) in the 
Federal Register. The Small Business Administration's (``SBA'') defines 
a broker dealer industry to be a small entity as having ``annual 
receipts'' of $38.5 million.\51\ However, FinCEN is concerned that 
using the SBA size standard rather than the SEC size standard may 
result in confusion. Accordingly, FinCEN consulted with the SBA's 
Office of Advocacy. After consultation, FinCEN is proposing to define 
the term small entity in accordance with definitions obtained from SEC 
rules implementing the Securities Exchange Act,\52\ in lieu of using 
the Small Business Administration's definition.\53\ The SEC defines an 
entity as a small broker or dealer, for purposes of the RFA, if it: (1) 
Had total capital (net worth plus subordinated liabilities) of less 
than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to Rule 17a-5(d) 
or, if not required to file such statements, a broker or dealer that 
had total capital (net worth plus subordinated debt) of less than 
$500,000 on the last business day of the preceding fiscal year (or in 
the time that it has been in business if shorter); and (2) is not 
affiliated with any person (other than a natural person) that is not a 
small business or small organization as defined in this release. The 
proposed rules would define broker or dealer in securities as: (1) A 
person registered, or required to be registered, as a broker or dealer 
with the Securities and Exchange Commission under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons who 
register pursuant to section 15(b)(11) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o(b)(11)); or (2) a person, registered, or 
required to be registered, as a funding portal with the Securities and 
Exchange Commission under section 4(a)(6) of the Securities Act of 1933 
(15 U.S.C. 77d(a)(6). Based on FOCUS Report data, the SEC estimated 
that there are 871 broker-dealers that are classified as ``small'' 
entities for purposes of the RFA.\54\ The SEC applied comparable 
criteria to funding portals that would register under the SEC's 
Crowdfunding rule.
---------------------------------------------------------------------------

    \51\ Id.
    \52\ 17 CFR 240.0-10c.
    \53\ 13 CFR 121.201.
    \54\ FOCUS Reports, or ``Financial and Operational Combined 
Uniform Single'' Reports, are monthly, quarterly, and annual reports 
that broker-dealer generally are required to file with the SEC and 
or self-regulatory organizations pursuant to Exchange Act Rule 17a-5 
(17 CFR 240.17a-5).
---------------------------------------------------------------------------

    Relying on the SEC's definition has the benefit of ensuring 
consistency in the categorization of small entities for SEC examiners, 
as well as providing the broker or dealer industry with a uniform 
standard. In addition, FinCEN's proposed use of the SEC's definition of 
small entity will have no material impact upon the application of these 
proposed rules to the broker or dealer industry. FinCEN requests 
comment on the appropriateness of using the SEC's definition of small 
entity.
    The proposed changes are intended to amend the regulatory 
definition of broker or dealer in securities to include funding portals 
in light of the JOBS Act and the Final SEC Crowdfunding Rules. While 
these amendments do not alter a broker or dealer in securities existing 
obligations, they will expand the BSA regulations to create obligations 
for funding portals. Accordingly, FinCEN has prepared an initial 
regulatory flexibility analysis pursuant to the Regulatory Flexibility 
Act. A final regulatory flexibility analysis will be conducted after 
consideration of comments received during the public comment period.
1. Statement of the Need for, and Objectives of, the Proposed 
Regulation
    The JOBS Act creates a comprehensive regulatory structure for 
startups and small businesses to raise capital through securities 
offerings using the Internet through crowdfunding. It also establishes 
the regulation of registered funding portals and brokers that are 
required to act as intermediaries in the offer and sale of crowdfunded 
securities. The JOBS Act amends the Federal securities laws to include 
certain funding portals, defined as any person acting as an 
intermediary in a transaction involving the offer or sale of securities 
for the account of others solely pursuant to section 4(a)(6) of the 
Securities Act, but that is exempted from the requirement to register 
as a broker-dealer with the SEC, and is instead required to be 
registered as a funding portal with the SEC. This proposed regulation 
is necessary to expand the scope of the regulatory definition of broker 
or dealer in securities to incorporate funding portals, to ensure 
consistent applicability of the BSA regulations to all brokers in 
securities.
2. Small Entities Affected by the Proposed Regulation
    While the proposed BSA requirements would impose burdens on funding 
portals, the proposed rules would not impose any burden on funding 
portals in addition to those already imposed on broker-dealers. 
Consequently, we do not discuss those burdens here, and we would not be 
requesting any separate approval from OMB to impose the burdens 
associated with the information collection requirements to comply with 
the requirements of 31 CFR 1023, including the BSA/AML program, CTR, 
SAR, CIP, Recordkeeping and travel rules, Due Diligence Programs for 
Correspondent Accounts for Foreign Financial Institutions and Private 
Bank accounts, Prohibition on Correspondent Account for Shell Banks, 
section 311, and section 314 requirements.
    The requirements of this proposed regulation, which are consistent 
with the existing requirements for brokers or dealers in securities, 
would include funding portals regardless of size. Based on SEC analysis 
of the estimated 50 funding portals in the first year expected to 
register with the SEC, as a result of the JOBS Act and implementing 
regulations, 30 would be classified as ``small'' entities for purposes 
of the Regulatory Flexibility Act.\55\
---------------------------------------------------------------------------

    \55\ See 80 FR 71387, 71533 (Nov. 16, 2015).
---------------------------------------------------------------------------

3. Compliance Requirements
    Upon finalization of this proposal, registered funding portals 
would be required to comply with all of the requirements of the BSA, 
including the reporting, recordkeeping, and record retention 
requirements that apply to entities currently defined as brokers or 
dealers in securities. We recognize that the proposed rules would 
impose costs on funding portals to implement AML procedures, but we 
believe that the proposed amendments and requirements provide important 
benefits. As noted in the SEC NPRM, low-priced and privately-placed 
securities pose a money laundering risk because they are susceptible to 
market manipulation and fraud.\56\ Requiring funding portals to comply 
with BSA regulations, in particular the requirement to file SARs, helps 
identify potentially fraudulent activity for law enforcement and 
regulators. These AML

[[Page 19093]]

requirements would therefore help to protect market participants from 
illegal activity that could potentially infiltrate new online 
investment opportunities. Requiring the implementation of AML 
procedures in turn provides potential investors with some degree of 
confidence that adequate protections against illegal activity exist for 
this new fundraising approach and could encourage more investors to 
participate, thus facilitating capital formation.
---------------------------------------------------------------------------

    \56\ See 78 FR 66428, 66490-66491 (Nov. 5, 2013).
---------------------------------------------------------------------------

    The proposed regulations would require funding portals to develop 
programs reasonably designed to comply with the BSA and to collect and 
keep certain information, as well as report suspicious activity, among 
other reports. While the proposed regulations would not change the 
scope of compliance with the BSA requirements for brokers or dealers in 
securities that are not funding portals, the reporting, recordkeeping, 
and other compliance requirements of the proposed regulation would 
impact small entities that decide to register as funding portals. While 
the majority of these requirements would be performed by the funding 
portal's internal compliance personnel, some funding portals may choose 
to hire outside counsel and third-party service providers to assist in 
meeting the compliance requirements.
4. Duplicative, Overlapping, or Conflicting Federal Rules
    FinCEN believes that there are no Federal rules that duplicate, 
overlap, or conflict with the proposed regulations or the proposed 
amendments.
5. Significant Alternatives to the Proposed Regulations
    FinCEN considered whether it would be appropriate to establish 
different compliance or reporting obligations for small funding portals 
in the proposal, or whether small funding portals should be exempt from 
any parts of the proposed rules or even from the rules in their 
entirety. While the proposed rules are based on existing compliance 
requirements applicable to registered brokers or dealers in securities, 
FinCEN believes that it would not be necessary, nor would it be 
advisable, to establish different requirements for small funding 
portals that engage in crowdfunding. Eliminating or issuing different 
requirements for smaller funding portals would not be the most 
effective means of addressing the money laundering risk associated with 
securities crowdfunding as it would create a loophole and a path of 
least resistance that money launderers could exploit. The number of 
small funding portals that would be affected by the proposed rules 
would be limited. According to the SEC, an industry survey of 
crowdfunding platforms reported that 191 platforms were estimated to be 
operating in the United States as of 2012.\57\ Based on 135 
participants in the survey both in the United States and international 
jurisdictions, 15% of funding portal platforms were engaged in 
securities-based crowdfunding.\58\ Although the number of 
intermediaries that may ultimately register as funding portal is 
uncertain, it is likely that three to four of the crowdfunding 
platforms that have the majority of market share in reward-based and 
donation-based crowdfunding would most likely obtain the majority of 
market share in the securities-based crowdfunding market based on 
section 4(a)(6).\59\ The BSA regulations are risk-based and are 
designed so that entities that are subject to the regulations can 
implement a program that is commensurate with the risks posed by their 
particular business. FinCEN expects that a small funding portal would 
implement a risk-based compliance program that takes into account the 
limited business activities in which the business participates. For 
example, a funding portal could implement a risk-based compliance 
program which reflects the fact that the business does not accept cash 
or securities from its customers. Therefore, we believe that the 
proposed rules are appropriate, and properly cover all brokers or 
dealers in securities, including funding portals. Furthermore, FinCEN 
believes that having different requirements for funding portals could 
undermine the objectives of the proposed requirements.
---------------------------------------------------------------------------

    \57\ See 78 FR 66428, 66516 (Nov. 5, 2013).
    \58\ The survey further indicated that 11% were engaged in 
lending-based crowdfunding, 27% in donation-based crowdfunding, and 
47% in reward-based crowdfunding.
    \59\ See 78 FR 66428, 66516 (Nov. 5, 2013).
---------------------------------------------------------------------------

    FinCEN welcomes comment on any significant alternatives that would 
minimize the impact of the proposal on small funding portal entities.

VIII. Paperwork Reduction Act

    The collection of information requirements have been reviewed and 
approved by the Office of Management and Budget (``OMB'') under section 
3507 of the Paperwork Reduction Act of 1995 (``PRA'') (44 U.S.C. 
3507(d). (OMB Control Number 1506-0004 for the CTR requirement, the OMB 
Control Number for the CTR report itself is 1506-0064, OMB Control 
Number 1506-0019 for the SAR regulatory requirement, the OMB Control 
Number for the BSA SAR report itself is 1506-0065, OMB Control Number 
1506-0034 for the CIP requirement, OMB Control Number 1506-0043 for the 
Prohibitions on Correspondent Accounts for Foreign Shell Banks 
requirement, OMB Control Number 1506-0049 for the section 314 
requirement, and OMB Control Number 1506-0053 for the Recordkeeping and 
travel rules requirements). Under the PRA, an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number. 
Certain provisions of the proposed rules contain ``collection of 
information'' requirements within the meaning of the PRA. This proposal 
intends to expand the scope of financial institutions subject to the 
BSA regulations FinCEN issued for brokers or dealers in securities to 
include funding portals. The collections of information included under 
OMB Control Number 1506-0004 for the CTR requirement, OMB Control 
Number 1506-0019 for the SAR requirement, OMB Control Number 1506-0034 
for the CIP requirement, OMB Control Number 1506-0043 for the 
Prohibitions on Correspondent Accounts for Shell Banks requirement, OMB 
Control Number 1506-0049 for the section 314 requirement, and OMB 
control number 1506-0053 for the Recordkeeping and travel rules 
requirements, respectively would be amended to reflect related burdens 
under the proposed rules.
1. Description of Affected Financial Institutions
    Funding portals registered or required to be registered with the 
SEC.
2. Estimated Number of Affected Financial Institutions
    According to the SEC, as of 2014, there are approximately 200 U.S.-
based crowdfunding portals in existence. Approximately 15% of these 
crowdfunding portals would participate in securities-based 
crowdfunding. The SEC estimates that the number of crowdfunding portals 
would grow at 60% per year over the next three years and that 
approximately 50 entities would register as funding portals 
annually.\60\
---------------------------------------------------------------------------

    \60\ See 80 FR 71387, 71523 (Nov. 16, 2015).
---------------------------------------------------------------------------

    For purposes of this analysis it should be noted that the actual 
number of funding portals that would participate in securities-based 
crowdfunding transactions is uncertain, as the rules governing 
securities-based crowdfunding transactions through funding portals have 
only recently been passed. Based on registration information currently 
available, the SEC estimates that approximately 10

[[Page 19094]]

intermediaries that are currently registered with the SEC may choose to 
register as brokers to act as intermediaries for transactions made in 
reliance on section 4(a)(6). In addition, approximately 50 
intermediaries per year that are registered as brokers with the SEC 
would choose to add to their service offerings by also becoming 
crowdfunding intermediaries or funding portals.
3. Estimated Average Annual Burden Hours Per Affected Financial 
Institutions, Estimated Total Annual Burden
    As this is a new requirement, the estimated average burden 
associated with the recordkeeping requirement in this proposed rule is 
three hours for development of a written program. A one hour per year 
burden is recognized for annual maintenance and update. FinCEN believes 
funding portals would establish policies and procedures to achieve 
compliance with the BSA requirements at the same time as it is 
establishing policies and procedures to comply with the JOBS Act. This 
would reduce the overall burden on funding portals as all issues 
concerning the establishment of policies and procedures could be 
addressed simultaneously. Nevertheless, the proposed rules would not 
impose any additional burden on funding portals to those currently 
imposed on brokers or dealers. Therefore, the burden on funding portals 
would be the same as the existing burden for broker-dealers, and would 
be included within those estimates FinCEN provided to OMB for brokers 
or dealers.

List of Subjects in 31 CFR Parts 1010 and 1023

    Authority delegations (Government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set forth in the preamble, parts 1010 and 1023 of 
Chapter X of title 31 of the Code of Federal Regulations are proposed 
to be amended as follows:

PART 1010--GENERAL PROVISIONS

0
1. The authority citation for part 1010 continues to read as follows:

    Authority:  12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, section 314, Pub. L. 107-56, 115 Stat. 307.

0
2. Amend Sec.  1010.100 by revising paragraph (h) to read as follows:


Sec.  1010.100  General definitions.

* * * * *
    (h) Broker or dealer in securities. A broker or dealer in 
securities means:
    (1) A person registered, or required to be registered, as a broker 
or dealer with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(b)(11)); or
    (2) A person registered, or required to be registered, as a funding 
portal with the Securities and Exchange Commission under section 
4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6));
* * * * *
0
3. Amend Sec.  1010.605 by revising paragraphs (e)(1)(viii) and 
(e)(2)(viii) to read as follows:


Sec.  1010.605  Definitions.

* * * * *
    (e) * * *
    (1) * * *
    (viii) A broker or dealer in securities means:
    (A) A person registered, or required to be registered, as a broker 
or dealer with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(b)(11)); or
    (B) A person registered, or required to be registered, as a funding 
portal with the Securities and Exchange Commission under section 
4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6));
* * * * *
    (2) * * *
    (viii) A broker or dealer in securities means:
    (A) A person registered, or required to be registered, as a broker 
or dealer with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(b)(11)); or
    (B) A person registered, or required to be registered, as a funding 
portal with the Securities and Exchange Commission under section 
4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)).
* * * * *

PART 1023--RULES FOR BROKERS OR DEALERS IN SECURITIES

0
4. The authority citation for part 1023 continues to read as follows:


    Authority:  12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, section 314, Pub. L. 107-56, 115 Stat. 307.

0
5. Amend Sec.  1023.100 by revising paragraph (b) to read as follows:


Sec.  1023.100  Definitions.

* * * * *
    (b) Broker or dealer in securities or broker-dealer means:
    (1) A person registered, or required to be registered, as a broker 
or dealer with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(b)(11)); or
    (2) A person registered, or required to be registered, as a funding 
portal with the Securities and Exchange Commission under section 
4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)).

Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2016-07345 Filed 4-1-16; 8:45 am]
 BILLING CODE 4810-02-P