(a) Application of FINRA Rule 9000 Series (Code of Procedure) to Funding Portals
Except for the FINRA Rule 9520 Series, FINRA Rule 9557, FINRA Rule 9561, and the FINRA Rule 9700 Series, all funding portal members shall be subject to the FINRA Rule 9000 Series, unless the context requires otherwise, provided, however, that: (2) the term "associated person" as used in the FINRA Rule 9000 Series shall mean "associated person of a funding portal member" or "person associated with a funding portal member" as defined pursuant to Funding Portal Rule 100(b)(1); (3) the terms "rules" and "FINRA rules" as used in the FINRA Rule 9000 Series shall include the Funding Portal Rules; (4) for purposes of FINRA Rule 9217, a funding portal member may be subject to a fine under FINRA Rule 9216(b) with respect to any of the following:
(A) failure to timely submit amendments to SEC Form Funding Portal;
(B) [Funding Portal Rule 200](c) (Communications with the Public);
(C) [Funding Portal Rule 300](a)—failure to maintain adequate written supervisory procedures where the underlying conduct is subject to FINRA Rule 9217; (D) [Funding Portal Rule 300](c)—failure to timely file reports;
(E) failure to provide or update contact information as required by [Funding Portal Rule 300](d);
(F) Rule 303(f) of SEC Regulation Crowdfunding—confirmation of transaction; and
(G) Rule 404 of SEC Regulation Crowdfunding—failure to make and preserve records in conformance with all applicable laws, rules, regulations and statements of policy promulgated thereunder, and with the Funding Portal Rules;
(5) for purposes of FINRA Rules 9134(b)(1) and 9134(b)(2), the residential or business address, as applicable, as reflected in SEC Form Funding Portal, in lieu of the Central Registration Depository, shall be acceptable; (6) for purposes of FINRA Rule 9134(b)(2), service on a contact employee, or United States agent for service of process, as set forth in SEC Form Funding Portal, in lieu of Form BD, shall be acceptable; (7) for purposes of FINRA Rule 9551(a), FINRA staff may issue a written notice requiring a funding portal member to file communications with the FINRA Advertising Regulation Department at least ten days prior to use if FINRA staff determines that the member has departed from the standards of [Funding Portal Rule 200](c). (8) for purposes of FINRA Rule 9551(d), the pre-use filing requirement referenced in a notice issued and served under FINRA Rule 9551 shall become effective 21 days after service of the notice, unless stayed by a request for a hearing pursuant to FINRA Rule 9559; (9) for purposes of proceedings pursuant to FINRA Rule 9810(a), proceedings may be initiated with respect to alleged violations of Section 10(b) of the Exchange Act and SEA Rule 10b-5, [Funding Portal Rule 200](a) (if the alleged violation is misuse of investor funds or assets, or based on violations of Section 17(a) of the Securities Act) and [Funding Portal Rule 200](b). (b) Eligibility Proceedings
(1) Purpose
Funding Portal Rule 900(b) sets forth procedures for a person to become or remain associated with a funding portal member, notwithstanding the existence of a statutory disqualification as defined in Article III, [Section 4] of the FINRA By-Laws and for a funding portal member or person associated with a funding portal member to obtain relief from the eligibility or qualification requirements of the FINRA By-Laws and Funding Portal Rules. Such actions hereinafter are referred to as "eligibility proceedings."
(2) Definitions
(A) The term "Application" means FINRA's Form MC-400 for individuals or Form MC-400A for funding portal members, filed with Credentialing, Registration, Education and Disclosure ("CRED").
(B) The term "disqualified funding portal member" means a funding portal member that is or becomes subject to a disqualification or is otherwise ineligible for membership under Article III, [Section 3] of the FINRA By-Laws.
(C) The term "disqualified person" means an associated person of a funding portal member or person seeking to become an associated person of a funding portal member who is or becomes subject to a disqualification or is otherwise ineligible for association under Article III, [Section 3] of the FINRA By-Laws.
(D) The term "sponsoring funding portal member" means the funding portal member or applicant for membership pursuant to Funding Portal Rule 110(a) that is sponsoring the association or continued association of a disqualified person to be admitted, readmitted, or permitted to continue in association. (3) Initiation of Eligibility Proceeding; Department of Member Regulation Consideration
(A) Initiation by FINRA
(i) Issuance of Notice of Disqualification or Ineligibility
If FINRA staff has reason to believe that a disqualification exists or that a funding portal member or person associated with a funding portal member otherwise fails to meet the eligibility requirements of FINRA, FINRA staff shall issue a written notice to the funding portal member or applicant for funding portal membership under Funding Portal Rule 110(a). The notice shall specify the grounds for such disqualification or ineligibility. FINRA staff shall not issue such written notice to funding portal members or applicants for funding portal membership when no Application is required pursuant to Funding Portal Rule 900(b)(7). (ii) Notice Regarding a Funding Portal Member
A notice issued to a disqualified funding portal member shall state that the disqualified funding portal member may apply for relief by filing an Application or, in the case of a matter set forth in Funding Portal Rule 900(b)(9)(A) a written request for relief, within 10 business days after service of the notice. If the funding portal member fails to file the Application or, where appropriate, the written request for relief, within the 10-day period, the membership of the funding portal member shall be canceled, unless the Department of Member Regulation grants an extension for good cause shown.
(iii) Notice Regarding an Associated Person
A notice issued regarding a disqualified person to a funding portal member or applicant for funding portal membership under Funding Portal Rule 110(a) shall state that such funding portal member or applicant for funding portal membership may file an Application on behalf of itself and such person or, in the case of a matter set forth in Funding Portal Rule 900(b)(9)(A) a written request for relief, within 10 business days after service of the notice. If the funding portal member fails to file the Application or, where appropriate, the written request for relief, within the 10-day period, the funding portal member may not associate or continue to associate with the disqualified person, unless the Department of Member Regulation grants an extension for good cause shown. (iv) Service
A notice issued under this paragraph (b)(3)(A) shall be served by facsimile or electronic mail, or pursuant to FINRA Rules 9131 and 9134, as adopted pursuant to Funding Portal Rule 900(a). (4) Obligation of Funding Portal Member to Initiate Eligibility Proceeding
(A) A funding portal member shall file an Application or, in the case of a matter set forth in Funding Portal Rule 900(b)(9)(A) a written request for relief, with CRED, if the funding portal member determines prior to receiving a notice under paragraph (b)(3)(A) of this Rule that:
(i) It has become a disqualified funding portal member;
(ii) A person associated with such funding portal member or whose association is proposed by an applicant for funding portal membership under Funding Portal Rule 110(a) has become a disqualified person; or (iii) The funding portal member or applicant for funding portal membership under Funding Portal Rule 110(a) wishes to sponsor the association of a person who is a disqualified person. (5) Withdrawal of Application or Written Request for Relief
A funding portal member may withdraw its Application or, as set forth in Funding Portal Rule 900(b)(9)(A) its written request for relief, at any time prior to an appeal by filing a written notice with the Department of Member Regulation and CRED pursuant to FINRA Rules 9135, 9136, and 9137, as adopted pursuant to Funding Portal Rule 900(a). A funding portal member may withdraw its Application after the start of an appeal but prior to the issuance of a decision by the National Adjudicatory Council by filing a written notice with the Department of Member Regulation and the Office of General Counsel pursuant to FINRA Rules 9135, 9136, and 9137, as adopted pursuant to Funding Portal Rule 900(a). (6) Ex Parte Communications
The prohibitions against ex parte communications set forth in FINRA Rule 9143, as adopted pursuant to Funding Portal Rule 900(a), shall become effective under Funding Portal Rule 900(b) when FINRA staff has initiated the eligibility proceeding and FINRA staff has knowledge that a funding portal member intends to file an Application or written request for relief pursuant to Funding Portal Rule 900(b). (7) Relief from Eligibility Proceedings
A funding portal member is not required to file an Application if:
(A) The disqualification arises solely from findings in Exchange Act Section 15(b)(4)(D) or (E) by the SEC, the Commodity Futures Trading Commission or a self-regulatory organization, and the sanction is no longer in effect.
(B) The disqualification arises solely from a final order specified in Exchange Act Section 15(b)(4)(H)(i), and the bar is no longer in effect, provided that there is no final order specified in Exchange Act Section 15(b)(4)(H)(ii), in which case paragraph (b)(7)(C) of this Rule applies.
(C) The disqualification arises solely from a final order specified in Exchange Act Section 15(b)(4)(H)(ii), and:
(i) the sanctions do not involve licensing or registration revocation or suspension (or analogous sanctions), and the sanctions are no longer in effect; or
(ii) the sanctions do involve licensing or registration revocation or suspension (or analogous sanctions), the sanctions are no longer in effect, and the order was entered 10 or more years ago.
(D) The disqualification arises solely under Exchange Act Section 3(a)(39)(E), and the disqualified funding portal member or person is subject to the disqualification solely because the member or person has associated with it any person who is known, or in the exercise of reasonable care should be known, to the disqualified member or person to be a person described by subparagraph (A), (B), (C), or (D) of Exchange Act Section 3(a)(39), unless the associated person controls such disqualified member or person, or is a general partner or officer (or person occupying a similar status or performing similar functions) of such disqualified member.
(8) Interim Plan of Heightened Supervision
(A) Submission of an Interim Plan of Heightened Supervision
An application filed pursuant to Funding Portal Rule 900(b)(3)(A)(iii) or Funding Portal Rule 900(b)(4)(A)(ii) that seeks the continued association of a disqualified person must include:
(i) An interim plan of heightened supervision. The application shall identify a person with authority to carry out the interim plan of heightened supervision, who has signed the plan and acknowledged his or her responsibility for implementing and maintaining such plan. The interim plan of heightened supervision shall be in effect throughout the entirety of the application review process which shall be considered concluded only upon the final resolution of the eligibility proceeding. The interim plan of heightened supervision shall comply with the provisions of Funding Portal Rule 300, and be reasonably designed and tailored to include specific supervisory policies and procedures that address any regulatory concerns related to the nature of the disqualification, the nature of the sponsoring funding portal member's business, and the disqualified person's current and proposed activities during the review process; and
(ii) A written representation from the sponsoring funding portal member that the disqualified person is currently subject to an interim plan of heightened supervision as set forth in paragraph (b)(8)(A)(i) of this Rule.
(B) Determination that an Application is Substantially Incomplete
If the Department of Member Regulation determines that an application filed pursuant to Funding Portal Rule 900(b)(3)(A)(iii) or Funding Portal Rule 900(b)(4)(A)(ii) that seeks the continued association of a disqualified person is substantially incomplete, it may reject the application and deem it not to have been filed. In such case, the Department of Member Regulation shall provide the sponsoring funding portal member notice of the delinquency and its reasons for so doing. The sponsoring funding portal member shall have 10 business days after service of the notice of delinquency to remedy the application, or such other time period prescribed by the Department of Member Regulation. An application will be deemed to be substantially incomplete if:
(i) It does not include the representation required by paragraph (b)(8)(A)(ii) of this Rule; or
(ii) The Department of Member Regulation determines that it does not include a reasonably designed interim plan of heightened supervision that complies with the standards of paragraph (b)(8)(A)(i) of this Rule.
(C) Consequences for Failure to Timely Remedy an Application that is Substantially Incomplete
If an applicant fails to remedy an application that is substantially incomplete, the Department of Member Regulation shall serve a written notice on the sponsoring funding portal member of its determination to reject the application and its reasons for so doing. FINRA shall refund the application fee, less $1,000, which shall be retained by FINRA as a processing fee. Upon such rejection, the sponsoring funding portal member must promptly terminate association with the disqualified person.
(9) Matters That May Be Approved After the Filing of an Application or Written Request for Relief
(A) The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve a written request for relief from the eligibility requirements by a disqualified funding portal member or a sponsoring funding portal member without the filing of an Application by such disqualified funding portal member or sponsoring funding portal member if a disqualified funding portal member or disqualified person is subject to one or more of the following conditions, but is not otherwise subject to disqualification:
(i) an injunction as described in Section 15(b)(4)(C) of the Exchange Act that was entered ten or more years prior to the proposed admission or continuance; or
(ii) a request to change the supervisor of a disqualified person.
(B) The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, may approve, upon the filing of an Application by a disqualified funding portal member or a sponsoring funding portal member and written consent to a heightened supervisory plan, all Applications seeking relief from disqualifications arising under Section 3(a)(39) of the Exchange Act.
(i) By the submission of a written consent to a heightened supervisory plan, the disqualified funding portal member, sponsoring funding portal member and disqualified person waive:
a. the right of appeal to the National Adjudicatory Council, the SEC, and the courts, or otherwise challenge the validity of the supervisory plan, if the supervisory plan is accepted;
b. any right of the disqualified funding portal member, sponsoring funding portal member, and disqualified person to claim bias or prejudgment by the Department of Member Regulation, the General Counsel, the National Adjudicatory Council, or any member of the National Adjudicatory Council, in connection with such person's or body's participation in discussions regarding the terms and conditions of the Department of Member Regulation's approval or the supervisory plan, or other consideration of the approval or supervisory plan, including acceptance or rejection of such approval or supervisory plan; and
c. any right of the disqualified funding portal member, sponsoring funding portal member, and disqualified person to claim that a person violated the ex parte prohibitions of FINRA Rule 9143 or the separation of functions prohibitions of FINRA Rule 9144, as adopted pursuant to Funding Portal Rule 900(a), in connection with such person's or body's participation in discussions regarding the terms and conditions of the approval or supervisory plan, or other consideration of the approval or supervisory plan, including acceptance or rejection of such approval or supervisory plan. (ii) If the heightened supervisory plan is rejected, the disqualified funding portal member, sponsoring funding portal member, or disqualified person shall be bound by the waivers made under paragraph (b)(9)(B)(i) of this Rule for conduct by persons or bodies occurring during the period beginning on the date the heightened supervisory plan was submitted and ending upon the rejection of the heightened supervisory plan and shall have the right to appeal such decision pursuant to Funding Portal Rule 900(b)(12).
(10) Department of Member Regulation Consideration of Applications for New Funding Portal Members
In all instances where FINRA receives a Form MC-400 or Form MC-400A under this Rule, and such Application is submitted on behalf of an applicant for membership as a funding portal member under Funding Portal Rule 110(a), the Department of Member Regulation shall defer a decision on such Form MC-400 or Form MC-400A until such time as FINRA has issued a determination on the application submitted pursuant to Funding Portal Rule 110(a). (11) Rights of Disqualified Funding Portal Member, Sponsoring Funding Portal Member, Disqualified Person, and Department of Member Regulation
(A) In the event the Department of Member Regulation does not approve a written request for relief from the eligibility requirements pursuant to Funding Portal Rule 900(b)(9)(A), the disqualified funding portal member or sponsoring funding portal member may file an Application under Funding Portal Rule 900(b)(9)(B). The Department of Member Regulation may require a disqualified funding portal member or sponsoring funding portal member to file an Application with CRED, notwithstanding the provisions of Funding Portal Rule 900(b)(9)(A).
(B) In the event the Department of Member Regulation does not approve an Application pursuant to Funding Portal Rule 900(b)(9)(B), the Department of Member Regulation shall inform the disqualified funding portal member or sponsoring funding portal member of its decision in writing. The decision shall explain in detail the reason for denial. The disqualified funding portal member or sponsoring funding portal member shall have the right to appeal such decision pursuant to Funding Portal Rule 900(b)(12). If not timely appealed pursuant to Funding Portal Rule 900(b)(12), the decision issued by the Department of Member Regulation shall constitute final action of FINRA and shall become effective immediately.
(12) Appeal of Department of Member Regulation's Decision to Deny an Application or a Written Request for Relief
(A) Notice
A funding portal member or sponsoring funding portal member may file a written notice of appeal within 14 days after service of a decision issued under Funding Portal Rule 900(b). The notice of appeal shall be filed with the Office of General Counsel, with a copy to the Department of Member Regulation. The notice of appeal shall state with specificity why the appellant believes the Department of Member Regulation's decision is not consistent with the public interest or should otherwise be set aside, and shall state whether a hearing is requested. The notice of appeal shall be signed by the appellant.
(B) Stay of Decision
An appeal of the Department of Member Regulation's decision to deny an Application or a written request for relief shall operate as a stay of that decision while the appeal is pending.
(C) Subcommittee
After an appellant files a timely appeal, the National Adjudicatory Council or the Statutory Disqualification Committee shall appoint two or more members, who shall be current or former members of the National Adjudicatory Council, Statutory Disqualification Committee, or former Directors or Governors, to form a subcommittee. The subcommittee shall conduct a hearing when one is requested, review the appeal, and recommend a decision to the Statutory Disqualification Committee.
(D) Notice of Hearing and Rights of Parties at Hearing
If a hearing is requested, the hearing shall be held no later than 90 days after the filing of a notice of appeal unless the subcommittee determines that there is good cause shown for extending the time period. The appellant and the Department of Member Regulation shall be notified via mail, email, facsimile, or overnight courier of the location, time, and date of the hearing not less than 14 business days before the hearing, unless the parties agree to shorten the time period or where good cause has been shown for an expedited proceeding under paragraph (b)(12)(F) of this Rule. The appellant and the Department of Member Regulation shall be entitled to be heard in person at a hearing, to be represented by an attorney, and to submit any relevant evidence. Upon determination that proceeding in person may endanger the health or safety of the participants or would be impracticable, or upon consideration of a joint motion of the parties for good cause shown, the subcommittee may, in the exercise of reasonable discretion, order the hearing to be conducted, in whole or in part, by video conference.
(E) Withdrawal or Abandonment
If an appellant abandons or withdraws the Application, the Department of Member Regulation's decision shall constitute final action by FINRA.
(F) Expedited Review
Where the failure to promptly review a decision to deny an Application would unduly or unfairly harm the funding portal member or sponsoring funding portal member, the subcommittee shall provide an expedited hearing upon a showing of good cause.
(G) Transmission of Documents
(i) Within 14 days after the filing of a notice of appeal, the Department of Member Regulation shall transmit to the Office of General Counsel, and serve on the appellant to the extent that any such documents have not been previously provided, copies of all documents that were considered in connection with the Department of Member Regulation's decision to deny the Application and an index to the documents.
(ii) Not less than 10 business days before the hearing, the Department of Member Regulation and the appellant shall serve proposed exhibit and witness lists on each other and the Office of General Counsel. The exhibit and witness lists shall be served by email, facsimile or overnight courier.
(iii) At any time prior to the issuance of its recommendation, the subcommittee may order the parties to supplement the record with any additional information that the subcommittee deems necessary. The subcommittee may also order the appellant and the Department of Member Regulation to file legal briefs.
(H) Extensions of Time, Postponements, and Adjournments
The subcommittee may shorten any time limits prescribed by these rules for the filing of any papers after obtaining consent of all the parties, and may postpone or adjourn any hearing. The subcommittee may extend any time limits prescribed by these rules for the filing of any papers.
(I) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court reporter.
(J) Record
The record shall consist of:
(i) the decision issued under Funding Portal Rule 900(b);
(ii) all documents relied upon in issuing the decision issued under Funding Portal Rule 900(b);
(iii) the notice of appeal;
(iv) any other submissions by the appellant and the Department of Member Regulation;
(v) any evidence considered at the hearing; and
(vi) the transcript of the hearing and any corrections thereto.
(K) Evidence Not Admitted
Evidence that is proffered but not admitted during the hearing shall not be part of the record, but shall be retained by the Office of General Counsel, as custodian of the record, until the date when FINRA's decision becomes final or, if applicable, upon the conclusion of any review by the SEC or the federal courts.
(L) Recommendation
On the basis of the record, the subcommittee shall present a recommended decision in writing on the request for relief to the Statutory Disqualification Committee. After considering the record and recommendation of the subcommittee, the Statutory Disqualification Committee shall present its recommended decision in writing to the National Adjudicatory Council.
(M) Decision
After considering all the matters presented in the request for relief, the Statutory Disqualification Committee's recommendation, the public interest and the protection of investors, the National Adjudicatory Council may affirm, modify, or reverse in writing the Department of Member Regulation's decision. The National Adjudicatory Council shall provide its proposed decision to the FINRA Board. If the FINRA Board does not call the decision for review, the decision shall be served pursuant to Funding Portal Rule 900(b)(3)(A)(iv) and shall constitute final action of FINRA. A decision to affirm the Department of Member Regulation's decision shall be effective immediately. A decision to approve the Application shall be effective after the SEC issues an order or acknowledgement letter, as the case may be.
(13) Discretionary Review by the FINRA Board
(A) Call for Review by the FINRA Board
A Governor may call a proposed National Adjudicatory Council decision regarding an eligibility proceeding for review by the FINRA Board if the call for review is made within the period prescribed in paragraph (b)(13)(B) of this Rule.
(B) 15 Day Period; Waiver
A Governor shall make his or her call for review not later than the next meeting of the FINRA Board that is at least 15 days after the date on which the FINRA Board receives the proposed written decision of the National Adjudicatory Council. By a unanimous vote of the FINRA Board, the FINRA Board may shorten the period to less than 15 days. By an affirmative vote of the majority of the FINRA Board then in office, the FINRA Board may, during the 15 day period, vote to extend the period to more than 15 days.
(C) Review at Next Meeting
If a Governor calls an eligibility proceeding for review within the period prescribed in paragraph (b)(13)(B) of this Rule, the FINRA Board shall review the eligibility proceeding not later than the next meeting of the FINRA Board. The FINRA Board may order the filing of briefs in connection with its review proceedings pursuant to this Rule.
(D) Decision of FINRA Board, Including Remand
After review, the FINRA Board may affirm, modify, or reverse the proposed written decision of the National Adjudicatory Council. Alternatively, the FINRA Board may remand the eligibility proceeding with instructions.
(E) Issuance of Decision
The FINRA Board shall issue and serve its written decision on the disqualified funding portal member, sponsoring funding portal member, or disqualified person, and the Department of Member Regulation pursuant to FINRA Rules 9132 and 9134, as adopted pursuant to Funding Portal Rule 900(a). The decision shall constitute the final action of FINRA, unless the FINRA Board remands the proceeding. A decision to deny re-entry or continued association shall be effective immediately. A decision to approve shall be effective after the SEC issues an acknowledgment letter or, in cases involving SEC-ordered sanctions, an order. (14) Application to SEC for Review
The right to have any action taken pursuant to this Rule Series reviewed by the SEC is governed by Section 19 of the Exchange Act. The filing of an application for review shall not stay the effectiveness of final action by FINRA, unless the SEC otherwise orders.
