[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.
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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.
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\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).
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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.
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\45\ See 31 CFR 1010.630.
\46\ See 31 U.S.C. 5318(j)(1) and 5312(a)(2).
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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.
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\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.
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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\
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\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).
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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\
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\49\ 31 CFR 1010.810(b)(6).
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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\
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\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.
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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.
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\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).
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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\
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\55\ See 80 FR 71387, 71533 (Nov. 16, 2015).
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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.
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\56\ See 78 FR 66428, 66490-66491 (Nov. 5, 2013).
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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.
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\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).
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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\
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\60\ See 80 FR 71387, 71523 (Nov. 16, 2015).
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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