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Talking Crowdfunding Best Practices
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Talking Crowdfunding Best Practices

Scott PurcellEditor's Note: The following post comes to us from Scott Purcell, Founder of Arctic Island, Board Member of CFIRA and Founding Member of CFPA.

In any regulated industry it’s critical that there is a strong, mutually respectful working relationship between those who work in the business and those who oversee it. Crowdfunding, as you know, is a new exemption to a very old, very large industry…and overseen by people who are not keen on change. As such it is imperative that we, as a coalition of interested parties, show regulators that our collective approach is out of respect and a mature awareness for their concerns.

The good news is that, via our trade associations of CFPA and CFIRA, the industry has established a solid working relationship with the SEC and FINRA. Our Board members and counsel meet with them often and regularly provide letters and guidance on questions they have during this rulemaking period. The regulators are working hard on getting Crowdfunding launched (yes, really), and we as an industry must continue to take steps which show we understand what is required and are capable.

To this end, CFIRA recently published the Best Practices for Funding Portals. This document addresses and sets operating standards for a wide variety of topics. These include agreed-upon definitions, elements of offering memorandums, fraud detection and deterrence mechanics, revenue models, back-office operations, exemptions, and even a set of “recommended” practices.

This document is a key component in getting securities-based Crowdfunding launched. It shows regulators that the industry has adopted a set of standard operating practices, it provides insurance companies with a way to gauge risk in a particular portal they are covering (with cyber liability, E and O, etc), a tool for investor advocacy groups to review a funding portal their members do business with, and a due diligence worksheet for venture capitalists and other funders of companies in the Crowdfunding industry. It also acts as an entry barrier for new entrants in the industry, as it spells out exactly what it takes to operate a funding portal, though as such it also provides a roadmap to those who really do have what it takes to get into the business. It achieves strong investor protection as it sets operating standards for all participants.

It effectively shows regulators the industry is on top of things, it creates a level playing filed among competitors, and it provides legal protections to everyone in the industry (as they can point to their compliance with industry best practices).

Want to get involved? We welcome your input on the Best Practices! Join CFPA or CFIRA and become part of the Crowdfunding Best Practices Advisory Council; it’s open to the public and is THE mechanism for providing ongoing feedback and suggestions. All comments are forwarded to the Best Practice Oversight Committee, with is a group of industry experts representing broker-dealers, registered portals, third-party service providers, investors and issuers. The BPOC is charged with maintaining the Best Practices going forward on behalf of the industry, and with communicating these changes to the SEC and FINRA.

As the industry finally launches, grows and matures, so will the Best Practices. We all look forward to the day when the dream of Crowdfunding is a reality, capitalizing millions of businesses and creating tens of millions of jobs. Between now and that point, there is still much work to be done…and a handful of smart, passionate entrepreneurs are doing exactly that. Join us in helping get this done!

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