81_FR_19150 81 FR 19086 - Amendments to the Definition of Broker or Dealer in Securities

81 FR 19086 - Amendments to the Definition of Broker or Dealer in Securities

DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network

Federal Register Volume 81, Issue 64 (April 4, 2016)

Page Range19086-19094
FR Document2016-07345

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.

Federal Register, Volume 81 Issue 64 (Monday, April 4, 2016)
[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Proposed Rules]
[Pages 19086-19094]
From the Federal Register Online  [www.thefederalregister.org]
[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 frc@fincen.gov.

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

[[Page 19089]]

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

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

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

[[Page 19090]]

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

    \41\ 31 CFR 1010.520(b).
    \42\ 31 CFR 1010.520(b)(3).
    \43\ 31 CFR 1023.540.
---------------------------------------------------------------------------

7. Due Diligence Anti-Money Laundering Programs for Private Banking and 
Certain Foreign Accounts
    31 CFR 1023.600 generally states that brokers or dealers in 
securities are subject to the special standards of diligence, 
prohibitions, and special measures requirements.\44\ Sections 1010.610, 
1010.620, and 1010.630 implement section 312 of the USA PATRIOT Act and 
generally apply to any financial institution listed in 31 U.S.C. 
5312(a)(2). Sections 1023.610 and 1023.620 require U.S. financial 
institutions, including brokers or dealers in securities, to establish 
risk-based due diligence policies, procedures, and controls reasonably 
designed to detect and report money laundering through correspondent 
accounts and private banking accounts that U.S. financial institutions 
establish or maintain for non-U.S. persons.
---------------------------------------------------------------------------

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

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

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

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

[[Page 19091]]

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

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

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

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

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

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

III. Section-by-Section Analysis

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

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

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

IV. Request for Comment

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

V. Executive Orders 12866 and 13563

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

VI. Unfunded Mandates Act of 1995 Statement

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

VII. Regulatory Flexibility Act

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

[[Page 19092]]

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

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

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

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

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

[[Page 19093]]

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

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

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

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

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

VIII. Paperwork Reduction Act

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

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

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

[[Page 19094]]

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

List of Subjects in 31 CFR Parts 1010 and 1023

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

Authority and Issuance

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

PART 1010--GENERAL PROVISIONS

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

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

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


Sec.  1010.100  General definitions.

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


Sec.  1010.605  Definitions.

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

PART 1023--RULES FOR BROKERS OR DEALERS IN SECURITIES

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


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

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


Sec.  1023.100  Definitions.

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

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



                                                    19086                     Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules

                                                    was not conducted in compliance with                       (1) A sunscreen active ingredient or                  (i) Include the condition in an
                                                    part 58 of this chapter, a brief statement              combination of sunscreen active                        appropriate OTC monograph(s), either
                                                    of the reason for the noncompliance.                    ingredients, and other conditions for                  by amending an existing monograph(s)
                                                       (x) The submission does not contain                  such ingredients, or                                   or establishing a new monograph(s), if
                                                    a statement for each clinical                              (2) A non-sunscreen active ingredient               necessary; or
                                                    investigation involving human subjects                  or combination of non-sunscreen active                   (ii) Include the condition in § 310.502
                                                    that it was conducted in compliance                     ingredients and other conditions for                   of this chapter.
                                                    with the institutional review board                     such ingredients submitted in a TEA                      (5) Within 912 days of the closing of
                                                    regulations in part 56 of this chapter, or              under § 330.14 prior to November 27,                   the docket of the proposed rulemaking
                                                    was not subject to those regulations, and               2014, subject to section 586F(a)(1)(C) of              under paragraph (c)(4) of this section,
                                                    that it was conducted in compliance                     the Federal Food, Drug, and Cosmetic                   FDA will issue a final rule.
                                                    with the informed consent regulations                   Act.                                                     Dated: March 29, 2016.
                                                    in part 50 of this chapter.                                (b) Metrics. FDA will maintain and                  Leslie Kux,
                                                       (xi) The submission does not include                 update annually, a publicly available                  Associate Commissioner for Policy.
                                                    financial certification or disclosure                   posting of metrics for the review of                   [FR Doc. 2016–07612 Filed 4–1–16; 8:45 am]
                                                    statements, or both, as required by part                TEAs and safety and effectiveness data
                                                                                                                                                                   BILLING CODE 4164–01–P
                                                    54 of this chapter, accompanying any                    submissions that are subject to the
                                                    clinical data submitted.                                timelines in this section. The posting
                                                       (k) Withdrawal of consideration. (1)                 will contain the following information
                                                    FDA may withdraw consideration of a                     for tracking the extent to which the                   DEPARTMENT OF THE TREASURY
                                                    TEA submission or a safety and                          timelines set forth in paragraph (c) of
                                                    effectiveness data submission if:                                                                              Financial Crimes Enforcement Network
                                                                                                            this section were met during the
                                                       (i) The sponsor requests that its                    previous calendar year.
                                                    submission be withdrawn from                                                                                   31 CFR Parts 1010 and 1023
                                                                                                               (1) Number and percent of eligibility
                                                    consideration, or                                       notices or ineligibility letters issued                RIN 1506–AB29
                                                       (ii) FDA deems the submission to be                  within 180 days of submission of a TEA;
                                                    withdrawn from consideration due to                        (2) Number and percent of filing                    Amendments to the Definition of
                                                    the sponsor’s failure to act on the                     determinations issued within 90 days of                Broker or Dealer in Securities
                                                    submission or failure to respond to                     submission of a safety and effectiveness               AGENCY: Financial Crimes Enforcement
                                                    communications from FDA.                                data submission;                                       Network (‘‘FinCEN’’), Treasury.
                                                       (2) Before FDA deems a submission                       (3) If applicable, number and percent               ACTION: Notice of proposed rulemaking.
                                                    withdrawn under paragraph (k)(1)(ii) of                 of feedback letters issued within 730
                                                    this section, FDA will notify the sponsor               days from the date of filing;                          SUMMARY:   FinCEN, a bureau of the
                                                    of the submission. If, within 30 days                      (4) Number and percent of notices for               Department of the Treasury, is
                                                    from the date of the notice from FDA,                   proposed rulemaking issued within                      proposing amendments to the
                                                    the sponsor requests that FDA not                       1,095 days from the date of filing;                    definitions of ‘‘broker or dealer in
                                                    withdraw consideration of the                              (5) Number and percent of final rules               securities’’ and ‘‘broker-dealer’’ under
                                                    submission, FDA will not deem the                       issued within 912 days of closing of the               the regulations implementing the Bank
                                                    submission to be withdrawn.                             docket of the proposed rulemaking; and                 Secrecy Act. This rulemaking would
                                                       (3) If FDA withdraws consideration of                   (6) Total number of TEAs submitted                  amend those definitions explicitly to
                                                    a submission under paragraph (k)(1) of                  under § 330.14.                                        include funding portals that are
                                                    this section, FDA will post a notice of                    (c) Timelines for FDA review and                    involved in the offering or selling of
                                                    withdrawal to the docket. Information                   action. FDA will review and take an                    crowdfunding securities pursuant to
                                                    that has been posted to the public                      action within the following timelines:                 section 4(a)(6) of the Securities Act of
                                                    docket for the TEA at the time of the                      (1) Within 180 days of submission of                1933. The consequence of those
                                                    withdrawal (such as a notice of                         a TEA under § 330.14(c), FDA will issue                amendments would be that funding
                                                    eligibility or a safety and effectiveness               a notice of eligibility or post to the                 portals would be required to implement
                                                    data submission that has been accepted                  docket a letter of ineligibility, in                   policies and procedures reasonably
                                                    for filing and posted to the docket) will               accordance with § 330.14(d) and (e).                   designed to achieve compliance with
                                                    remain on the public docket.                                                                                   the Bank Secrecy Act requirements
                                                                                                               (2) Within 90 days of submission by
                                                       (4) If FDA withdraws consideration of                                                                       currently applicable to brokers or
                                                                                                            the sponsor of a safety and effectiveness
                                                    a submission under paragraph (k)(1) of                                                                         dealers in securities. The proposal to
                                                                                                            data submission, FDA will issue a filing
                                                    this section, the timelines under                                                                              specifically require funding portals to
                                                                                                            determination in accordance with
                                                    § 330.15(c) will no longer apply as of the                                                                     comply with the Bank Secrecy Act
                                                                                                            § 330.14(j). The date of filing begins the
                                                    date of withdrawal, and the submission                                                                         regulations is intended to help prevent
                                                                                                            FDA timelines in paragraphs (c)(3) and
                                                    will not be included in the metrics                                                                            money laundering, terrorist financing,
                                                                                                            (4) of this section.
                                                    under § 330.15(b).                                                                                             and other financial crimes.
                                                                                                               (3) Within 730 days from the date of
                                                    ■ 3. Add § 330.15 to subpart B to read
                                                                                                            filing, if the condition is initially                  DATES: Written comments on this Notice
                                                    as follows:
                                                                                                            determined not to be GRASE for OTC                     of Proposed Rulemaking (‘‘NPRM’’)
                                                                                                            use in the United States, FDA will                     must be submitted on or before June 3,
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                                                    § 330.15 Timelines for FDA review and
                                                    action on time and extent applications and              inform the sponsor and other interested                2016.
                                                    safety and effectiveness data submissions.              parties who have submitted data of its                 ADDRESSES: Comments may be
                                                      (a) Applicability. This section applies               determination by feedback letter in                    submitted, identified by Regulatory
                                                    to the review of a condition in a time                  accordance with § 330.14(g)(4).                        Identification Number (RIN) 1506–
                                                    and extent application (TEA) submitted                     (4) Within 1,095 days from the date of              AB29, by any of the following methods:
                                                    under § 330.14 for consideration in the                 filing of a safety and effectiveness data                • Federal E-rulemaking Portal: http://
                                                    over-the-counter (OTC) drug monograph                   submission, FDA will issue a notice of                 www.regulations.gov. Follow the
                                                    system. This section does not apply to:                 proposed rulemaking to either:                         instructions for submitting comments.


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                                                                              Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules                                                       19087

                                                    Include RIN 1506–AB29 in the                            authority to implement, administer, and                 register the securities with the
                                                    submission. Refer to Docket Number                      enforce compliance with the BSA and                     Securities and Exchange Commission
                                                    FINCEN–2014–0005.                                       its implementing regulations.4                          (‘‘SEC’’ or ‘‘Commission’’) or state
                                                      • Mail: FinCEN, P.O. Box 39, Vienna,                     The BSA was amended by the                           securities regulators.10 Crowdfunding is
                                                    VA 22183. Include RIN 1506–AB29 in                      Annunzio-Wylie Anti-Money                               a new and evolving method to raise
                                                    the body of the text.                                   Laundering Act of 1992 (Pub. L. 102–                    money using the Internet by seeking
                                                       Please submit comments by one                        550) (‘‘Annunzio-Wylie’’).5 Annunzio-                   small individual contributions from a
                                                    method only. Comments submitted in                      Wylie authorizes the Secretary to issue                 large number of people. The
                                                    response to this NPRM will become a                     regulations requiring financial                         crowdfunding provisions of the JOBS
                                                    matter of public record. Therefore, you                 institutions to implement programs to                   Act were designed to help startups and
                                                    should submit only information that                     guard against money laundering,                         small businesses raise funds by making
                                                    you wish to make publicly available.                    maintain records considered useful in                   relatively low-dollar offerings of
                                                       Inspection of comments: The public                   criminal, tax, or regulatory                            securities less costly. They also permit
                                                    dockets for FinCEN can be found at                      investigations or proceedings, and                      Internet-based platforms known as
                                                    Regulations.gov. Federal Register                       report suspicious transactions.6 When                   ‘‘funding portals,’’ acting as
                                                    notices published by FinCEN are                         prescribing minimum standards for                       intermediaries, to facilitate the offer or
                                                    searchable by docket number, RIN, or                    AML programs, FinCEN must ‘‘consider                    sale of securities without having to
                                                    document title, among other things, and                 the extent to which the requirements                    register with the SEC as brokers.
                                                    the docket number, RIN, and title may                   imposed under [the AML program                             Title III of the JOBS Act amends the
                                                    be found at the beginning of the notice.                requirement] are commensurate with                      Securities Act of 1933 and the Securities
                                                    FinCEN uses the electronic, Internet-                   the size, location, and activities of the               Exchange Act of 1934 to create a new
                                                    accessible dockets at Regulations.gov as                financial institutions to which such                    exemption for offerings of crowdfunded
                                                    their complete, official-record docket;                 regulations apply.’’ 7 Pursuant to these                securities.11 Specifically, the JOBS Act
                                                    all hard copies of materials that should                authorities, FinCEN has issued                          amends section 4 of the Securities Act
                                                    be in the docket, including public                                                                              of 1933 to exempt issuers from the
                                                                                                            regulations requiring brokers or dealers
                                                    comments, are electronically scanned                                                                            registration requirements of section 5 of
                                                                                                            in securities to report suspicious
                                                    and placed in the docket. In general,                                                                           that Act when they offer and sell up to
                                                                                                            transactions and implement AML
                                                    FinCEN will make all comments                                                                                   $1 million in securities, provided that,
                                                                                                            programs.8
                                                    publicly available by posting them on                                                                           among other things, individual
                                                    http://www.regulations.gov.                             II. Background Information                              investments do not exceed certain
                                                    FOR FURTHER INFORMATION CONTACT:                                                                                thresholds (e.g., $2,000 to $100,000 in a
                                                                                                            A. The Effect of the JOBS Act and the
                                                    FinCEN Resource Center at 1–800–767–                    Securities and Exchange Commission                      12-month period) based on the
                                                    2825 or 1–703–905–3591 (not a toll free                 Crowdfunding Rule on the Scope of the                   investor’s annual income or net worth.
                                                    number) and select option 3 for                         Definitions of Brokers or Dealers in                    Additionally, issuers must use the
                                                    regulatory questions. Email inquiries                   Securities and Broker-Dealers Under the                 services of an intermediary that is either
                                                    can be sent to frc@fincen.gov.                          Implementing Regulations of the BSA                     a broker registered with the SEC or a
                                                    SUPPLEMENTARY INFORMATION:                                                                                      ‘‘funding portal’’ registered with the
                                                                                                               The Jumpstart Our Business Startups                  SEC.12
                                                    I. Statutory and Regulatory Provisions                  Act (the ‘‘JOBS Act’’), enacted on April                   The JOBS Act also amends the
                                                       The Currency and Foreign                             5, 2012, establishes the foundation for a               Securities Exchange Act of 1934 to
                                                    Transactions Reporting Act of 1970, as                  regulatory structure for startups and                   include a definition of funding portals
                                                    amended by the Providing Appropriate                    small businesses to raise funds by                      in section 3(a)(80).13 The JOBS Act
                                                    Tools Required to Intercept and                         offering and selling securities through                 defines a funding portal as any person
                                                    Obstruct Terrorism Act of 2001 (Public                  crowdfunding 9 without having to                        acting as an intermediary in a
                                                    Law 107–56) (‘‘USA PATRIOT Act’’)                                                                               transaction involving the offer or sale of
                                                    and other legislation, which legislative                  4 Treasury   Order 180–01 (Jul. 1, 2014).
                                                                                                                                                                    securities for the account of others,
                                                                                                              5 31  U.S.C. 5318(g) was added to the BSA by
                                                    framework is commonly referred to as                                                                            solely pursuant to section 4(a)(6) of the
                                                                                                            section 1517 of the Annunzio-Wylie Act; it was
                                                    the Bank Secrecy Act (‘‘BSA’’),1                        expanded by section 403 of the Money Laundering         Securities Act that does not: (i) Offer
                                                    authorizes the Secretary of the Treasury                Suppression Act of 1994 (the ‘‘Money Laundering         investment advice or recommendations;
                                                    (‘‘Secretary’’) to require financial                    Suppression Act’’), Title IV of the Riegle              (ii) solicit purchases, sales, or offers to
                                                    institutions to keep records and file                   Community Development and Regulatory
                                                                                                            Improvement Act of 1994, Public Law 103–325, to         buy securities offered or displayed on
                                                    reports that ‘‘have a high degree of                    require designation of a single government recipient    its Web site or portal; (iii) compensate
                                                    usefulness in criminal, tax, or regulatory              for reports of suspicious transactions. As amended      employees, agents, or other persons for
                                                    proceedings, or in the conduct of                       by the USA PATRIOT Act, subsection (g)(1) states        such solicitation or based on the sale of
                                                    intelligence or counterintelligence                     generally that ‘‘the Secretary may require any
                                                                                                                                                                    securities displayed or referenced on its
                                                    activities, including analysis, to protect              financial institution, and any director, officer,
                                                                                                            employee, or agent of any financial institution, to
                                                    against international terrorism.’’ 2 In                 report any suspicious transaction relevant to a         only instances in which crowdfunding involves
                                                    addition, the Secretary is authorized to                possible violation of law or regulation.’’              facilitating an offer or sale of securities to raise
                                                    impose anti-money laundering (‘‘AML’’)                     6 Annunzio-Wylie Anti-Money Laundering Act,          money for a business pursuant to section 4(a)(6) of
                                                    program requirements on financial                       Title XV of the Riegle Community Development and        the Securities Act. For example, this NPRM is not
                                                                                                            Regulatory Improvement Act of 1994, Public Law          addressing instances where crowdfunding is
                                                    institutions.3 The Secretary has
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                                                                                                            103–325; See also 31 U.S.C. 5318(g).                    utilized to solicit donations from the general public
                                                    delegated to the Director of FinCEN the                    7 See section 352(c) of Title III of the USA         or a targeted group.
                                                                                                                                                                      10 Public Law 112–106, 126 Stat. 306 (2012).
                                                                                                            PATRIOT Act of 2001, Pub. L. 107–56, 115 Stat.
                                                      1 The BSA is codified at 12 U.S.C. 1829b and          272, 322 (2001) (codified at 31 U.S.C. 5318(h)).          11 Id. See also sections 4(a)(6) and 4A of the

                                                    1951–1959, and 31 U.S.C. 5311–5314 and 5316–               8 31 CFR 1023.320.                                   Securities Act of 1933 (15 U.S.C. 77a et seq.), and
                                                    5332 and notes thereto, with implementing                  9 Crowdfunding is the use of the Internet to raise   section 3(a)(80) of the Securities Exchange Act of
                                                    regulations at 31 CFR Chapter X. See 31 CFR             money through small contributions from a large          1934 (15 U.S.C. 78a et seq.).
                                                    1010.100(e).                                            number of investors. Not all crowdfunding involves        12 Id.
                                                      2 31 U.S.C. 5311.
                                                                                                            the offering or selling of securities, though in some     13 See section 3(a)(80) of the Securities Exchange
                                                      3 31 U.S.C. 5318.                                     instances it does. This NPRM is meant to address        Act of 1934 (15 U.S.C. 78a et seq.).



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                                                    19088                      Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules

                                                    Web site or portal; (iv) hold, manage,                   determined ‘‘that it would be more                      acquired assets can be used to purchase
                                                    possess, or otherwise handle investor                    appropriate to work with other                          these securities in order to resell them
                                                    funds or securities; or (v) engage in such               regulators to develop consistent and                    and create the appearance of
                                                    other activities as the SEC, by rule,                    effective AML obligations for funding                   legitimately sourced funds.26 It is also
                                                    determines appropriate.14                                portals,’’ and chose not to adopt                       possible that issuers relying on the
                                                       In addition, the JOBS Act adds new                    proposed rule 403(b).21 Now that the                    exemption in section 4(a)(6) may be
                                                    section 3(h) to the Securities Exchange                  SEC has finalized its Crowdfunding rule                 shell companies, which have been
                                                    Act of 1934, which requires the SEC to                   exempting funding portals from having                   associated with a high risk of money
                                                    exempt, by rule, conditionally or                        to register as brokers or dealers in                    laundering.27 Congress recognized and
                                                    unconditionally, a registered funding                    securities, FinCEN is proposing this                    expressed concern about these money
                                                    portal from the requirement to register                  rulemaking to ensure that registered                    laundering and financial crimes risks,
                                                    with the SEC as a broker.15 The funding                  funding portals are subject to BSA                      which is why, in part, it chose to require
                                                    portal would, however, remain subject                    regulations.                                            that securities offered and sold in
                                                    to the SEC’s examination, enforcement,                      There are good reasons to ensure that                reliance on section 4(a)(6) be sold
                                                    and rulemaking authority. The funding                    funding portals are subject to BSA                      through a regulated intermediary.28
                                                    portal also must become a member of a                    regulations. As the SEC has recognized,                    FinCEN believes that funding portals
                                                    national securities association that is                  funding portals would continue to                       could play a critical role in detecting,
                                                    registered under section 15A of the                      function as brokers regardless of the                   preventing, and reporting money
                                                    Securities Exchange Act.16 As required                   statutory provisions exempting them                     laundering and other illicit financing,
                                                    by the JOBS Act, the SEC issued a notice                 from registering as brokers under the                   such as market manipulation and fraud.
                                                    of proposed rulemaking                                   Exchange Act.22 Specifically, although                  As described above, funding portals
                                                    (‘‘Crowdfunding NPRM’’) on November                      the JOBS Act prohibits a funding portal                 should be subject to normal BSA
                                                    5, 2013 proposing the regulatory                         from holding, managing, possessing, or                  obligations. A funding portal, like an
                                                    framework for intermediaries facilitating                handling customer funds or securities, a                introducing broker, is in the best
                                                    the offer or sales of crowdfunded                        funding portal’s business activity is                   position to know its customers, and to
                                                    securities,17 which it finalized largely as              essentially similar to that of introducing              identify and monitor for suspicious and
                                                    proposed on October 30, 2015.18                          brokers, which typically do not accept                  potentially illicit activity at the
                                                       Current BSA regulations at Part 1023                  cash from customers or maintain                         individual customer level, as compared
                                                    of Chapter X of Title 31 of the CFR (the                 custody of customer securities,23 but yet               to other required participants in the
                                                    Part that imposes the specific                           are subject to the BSA regulations. As                  transaction such as the qualified third
                                                    requirements to maintain an anti-money                   such, funding portals raise at least the
                                                    laundering program and to file                                                                                   either use existing shares that are already publicly
                                                                                                             same degree of AML and counter                          traded or start a shell company for the express
                                                    suspicious activity reports) define                      financing of terrorism risk as some other               purpose of engaging in those illicit activities. In
                                                    ‘‘broker-dealers’’ by reference to persons               broker-dealers registered with the SEC,                 addition, criminal organizations also have been
                                                    ‘‘registered, or required to be registered,              and should be regulated                                 known to use illicit assets generated outside the
                                                    as a broker or dealer with the                                                                                   securities industry to engage in market
                                                                                                             commensurately under the BSA.                           manipulation and fraud.’’
                                                    Commission under the Securities                             Moreover, as the SEC noted in its                       26 See 78 FR 66428, 66490–66491 (Nov. 5, 2013).
                                                    Exchange Act of 1934.’’ 19 As described                  November 5, 2013 Crowdfunding                           ‘‘Moreover, criminal organizations can also initially
                                                    above, a registered funding portal would                 NPRM, there is reason to ‘‘expect that                  invest in a private company that they can then use
                                                    not be a person required to be registered                                                                        as a front company for commingling illicit and
                                                                                                             funding portals would often facilitate                  legitimate assets. They can then take this company
                                                    as a broker with the Commission                          offerings of microcap or low-priced                     public through an offering in the public securities
                                                    because a funding portal would be                        securities, which may be more                           markets, thus creating what appear to be legitimate
                                                    exempt from broker registration, and                     susceptible to fraud and market                         offering revenues. Alternatively, criminal
                                                    thus would not be subject to BSA                                                                                 organizations can acquire a publicly traded
                                                                                                             manipulation. We believe that imposing                  company and use it to launder illicit assets.’’ The
                                                    regulations under the current BSA                        the monitoring and reporting                            FATF Typology further highlighted the risk of shell
                                                    definition of ‘‘broker-dealers.’’ In its                 requirements of the BSA on funding                      companies that, for example, ‘‘can be established to
                                                    Crowdfunding NPRM, the SEC sought to                     portals would establish a valuable                      accept payments from criminal organizations for
                                                                                                                                                                     non-existent services. These payments, which
                                                    address this issue through its proposed                  oversight, prevention and detection                     appear legitimate, can be deposited into depository
                                                    rule 403(b). Specifically, the SEC                       mechanism.’’ 24 In a 2010 published                     or brokerage accounts and either wire transferred
                                                    proposed that ‘‘[n]otwithstanding [the                   report, the Financial Action Task Force                 out of a jurisdiction or used to purchase securities
                                                    exemption from registration as a broker                  also identified low-priced and privately-               products that are easily transferable or redeemable.’’
                                                                                                                                                                        27 See 78 FR 66428, 66490–66491 (Nov. 5, 2013).
                                                    or dealer in securities], for purposes of                placed securities as potential vehicles                 See also, e.g., Joint Release, Guidance on Obtaining
                                                    31 CFR chapter X, a funding portal is                    for laundering money.                                   and Retaining Beneficial Ownership Information,
                                                    ‘required to be registered’ as a broker or                  These securities pose a money                        FIN–2010–G001 (Mar. 5, 2010) (noting that
                                                    dealer with the Commission under the                     laundering risk because they are often                  criminals, money launderers, tax evaders, and
                                                                                                                                                                     terrorists may exploit the privacy and
                                                    Exchange Act.’’ 20 At the final stage of                 used to generate illicit assets through                 confidentiality surrounding some business entities,
                                                    its Crowdfunding rulemaking, the SEC                     market manipulation, insider trading,                   including shell companies and other vehicles
                                                                                                             and fraud.25 In addition, unlawfully                    designed to conceal the nature and purpose of illicit
                                                      14 Id.                                                                                                         transactions and the identities of the persons
                                                       15 Id. Generally, a third party that operates a Web     21 See                                                associated with them); Financial Crimes
                                                                                                                        80 FR 71387, 71471 (Nov. 16, 2015).
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                                                    site to effect the purchase and sale of securities for     22 See
                                                                                                                                                                     Enforcement Network, The Role of Domestic Shell
                                                                                                                        78 FR 66428, 66483–66484.                    Companies in Financial Crime and Money
                                                    the account of others generally would, under                23 See infra note 20.
                                                    existing regulations, be required to register with the                                                           Laundering: Limited Liability Companies (Nov.
                                                                                                                24 See78 FR 66428, 66490–66491 (Nov. 5, 2013).
                                                    Commission as a broker-dealer and comply with the                                                                2006), available at http://www.fincen.gov/news_
                                                    laws and regulations applicable to broker-dealers.
                                                                                                                25 Id. See also Financial Action Task Force          room/rp/files/LLCAssessment_FINAL.pdf.
                                                       16 Id.                                                (‘‘FATF’’), Money Laundering and Terrorist                 28 See 78 FR 66428, 66490–66491 (Nov. 5, 2013).

                                                       17 See 78 FR 66428 (Nov. 5, 2013).
                                                                                                             Financing in the Securities Sector 20–21 (Oct. 2009)    See also 158 Cong. Rec. S1781 (daily ed. Mar. 19,
                                                                                                             (‘‘FATF Typology’’) (discussing the money               2012) (statement of former Sen. Carl Levin) (‘‘Senior
                                                       18 See 80 FR 71387 (Nov. 16, 2015).
                                                                                                             laundering risks associated with low priced             citizens, state securities regulators, and others
                                                       19 31 CFR 1023.100.
                                                                                                             securities, private issuers, and shell companies). As   worry that this will give rise to money laundering
                                                       20 See 78 FR 66428, 66484 (Nov. 5, 2013).             explained in the FATF Typology, illicit actors ‘‘can    and fraud risks.’’).



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                                                                               Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules                                                    19089

                                                    party, which may not see such activity                   B. Overview of the Current Regulatory                 requirements of its self-regulatory
                                                    given its less direct contact with                       Provisions Regarding Brokers or Dealers               organization (‘‘SRO’’) is deemed to
                                                    individual customers.29 FinCEN                           in Securities and Broker-Dealers                      satisfy the requirement of section 5318
                                                    understands that the JOBS Act was                           On October 26, 2001, the President                 (h)(1) of the BSA.33
                                                    designed to provide regulatory relief                    signed into law the USA PATRIOT Act                   2. Suspicious Activity Report
                                                    and ease the funding gap that startups                   of 2001. Title III of the USA PATRIOT
                                                    and small businesses often face, while                   Act makes a number of amendments to                      FinCEN has promulgated Suspicious
                                                    providing significant investor                           the anti-money laundering provisions of               Activity Report (‘‘SAR’’) regulations for
                                                    protections. But in addition to investor                 the BSA to promote the prevention,                    a number of financial institutions. These
                                                    protections, any regulatory structure for                detection, and prosecution of                         include banks, casinos, money services
                                                    securities-based crowdfunding through                    international money laundering and the                businesses, brokers or dealers in
                                                    the Internet must also address the risk                  financing of terrorism. The statutory                 securities, mutual funds, insurance
                                                    of money laundering and other financial                  mandate that all financial institutions,              companies, and futures commission
                                                    crimes presented by the misuse of                        which include brokers or dealers in                   merchants and introducing brokers in
                                                    crowdfunding transactions. FinCEN                        securities, establish an AML program                  commodities.34 31 CFR 1023.320
                                                    agrees with the SEC that a funding                       and comply with the BSA regulations is                contains the rules setting forth the
                                                                                                             a key element in the nation’s effort to
                                                    portal engaging in the business of                                                                             obligation of broker-dealers in securities
                                                                                                             detect and prevent money laundering
                                                    effecting securities transactions for the                                                                      to report suspicious transactions.
                                                                                                             and the financing of terrorism. If
                                                    accounts of others through                                                                                     Specifically, brokers or dealers in
                                                                                                             implemented, this proposal would
                                                    crowdfunding is acting as a broker-                                                                            securities are required to report a
                                                                                                             explicitly incorporate a funding portal’s
                                                    dealer, despite the exemption from                       activities within the existing definition             transaction that is conducted or
                                                    registration under the Exchange Act that                 of brokers or dealers in securities, and              attempted by, at, or through a broker-
                                                    Congress directed the SEC to                             require funding portals to comply with                dealer and involves or aggregates to at
                                                    implement, and that this new type of                     the full range of requirements outlined               least $5,000 in funds or other assets, and
                                                    broker or dealer in securities should be                 in 31 CFR 1023 applicable to broker-                  the broker-dealer knows, suspects, or
                                                    subject to supervision under the BSA                     dealers, including: (1) AML program; (2)              has reason to suspect that the
                                                    regulation.                                              Suspicious Activity Report; (3)                       transaction (or a pattern of transactions
                                                                                                             Customer Identification Program; (4)                  of which the transaction is a part) (i)
                                                       For all of these reasons, in addition to
                                                                                                             Currency Transaction Report; (5)                      involves funds derived from illegal
                                                    the provisions finalized in the SEC’s
                                                                                                             Recordkeeping and Travel rules; (6)                   activity or is intended or conducted to
                                                    Crowdfunding rulemaking, FinCEN
                                                                                                             Information Sharing (section 314); (7)                hide or disguise funds or assets derived
                                                    believes that it is further appropriate, in                                                                    from illegal activity; (ii) is designed,
                                                                                                             Due Diligence for Correspondent
                                                    response to changes in the registration                                                                        whether through structuring or other
                                                                                                             Accounts for Foreign Financial
                                                    requirement in the JOBS Act, to amend                                                                          means, to evade the requirements of the
                                                                                                             Institutions and Private Banking
                                                    the BSA definitions of a broker or dealer                                                                      BSA; (iii) has no business or apparent
                                                                                                             Accounts; (8) Prohibition on
                                                    in securities and broker-dealer to                       Correspondent Accounts for Foreign                    lawful purpose, and the broker or dealer
                                                    explicitly include funding portals,                      Shell Banks; and (9) Special Measures                 in securities knows of no reasonable
                                                    registered or required to be registered as               (section 311).30 The following are brief              explanation for the transaction after
                                                    such, with the SEC. Explicitly requiring                 descriptions of the regulations that                  examining the available facts; or (iv)
                                                    funding portals to comply with the                       would apply to funding portals if this                involves the use of the broker-dealer to
                                                    BSA’s requirements, consistent with                      rulemaking is finalized as proposed.                  facilitate criminal activity.
                                                    registered brokers or dealers in
                                                    securities, helps ensure consistent                      1. Anti-Money Laundering Program                      3. Currency Transaction Report
                                                    regulation of brokers or dealers in                         Section 352(a) of the USA PATRIOT
                                                                                                                                                                     The Secretary was granted authority
                                                    securities with fewer opportunities for                  Act amended section 5318(h) of the
                                                                                                             BSA. Section 5318(h)(1) requires every                in 1970, with the enactment of 31 U.S.C.
                                                    regulatory gaps, which could be                                                                                5313, to require financial institutions to
                                                    exploited by financial criminals.                        financial institution defined in 31
                                                                                                             U.S.C. 5312(a)(2), which are also                     report currency transactions exceeding
                                                    Because the BSA and its implementing                                                                           $10,000. The information collected on
                                                    rules are risk-based, we expect that                     covered in 31 CFR, to establish an AML
                                                                                                             program that includes, at minimum, (1)                the Currency Transaction Report is
                                                    funding portals would design programs                                                                          required to be provided pursuant to 31
                                                    commensurate with their limited                          the development of internal policies,
                                                                                                             procedures, and controls; (2) the                     U.S.C. 5313. The implementing
                                                    business model and not the more                                                                                regulation for brokers or dealers in
                                                                                                             designation of a compliance officer; (3)
                                                    comprehensive programs established by                                                                          securities can be found at 31 CFR
                                                                                                             an ongoing employee training program;
                                                    full service broker-dealers.                                                                                   1023.310.
                                                                                                             and (4) an independent audit function
                                                       29 See 78 FR 66428, 66490. See also, e.g., National
                                                                                                             to test programs.31 The BSA defines the
                                                                                                                                                                     33 31 CFR 1023.210. See also Notice of Proposed
                                                    Association Of Securities Dealers (‘‘NASD’’) (n/k/a
                                                                                                             term ‘‘financial institution’’ to include,
                                                                                                                                                                   Rulemaking—Customer Due Diligence
                                                    ‘‘FINRA’’), NASD Provides Guidance To Member             in part, ‘‘a broker or dealer in                      Requirements for Financial Institutions 79 FR
                                                    Firms Concerning Anti-Money Laundering                   securities.’’ 32 Currently, a broker or               45151 (Aug. 4, 2014). Treasury proposed rules to
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                                                    Compliance Programs Required by Federal Law,             dealer in securities that implements and              clarify and strengthen customer due diligence
                                                    Special Notice to Members 02–21 (Apr. 2002),             maintains an AML program that                         requirements, to include a new requirement to
                                                    available https://www.finra.org/Industry/                                                                      identify beneficial owners of legal entity customers.
                                                    Regulation/Notices/2002/p003703 (stating that
                                                                                                             complies with the rules, regulations, or              The proposed changes in that notice of proposed
                                                    ‘‘introducing brokers generally are in the best                                                                rulemaking may have an impact on what is
                                                                                                               30 See 31 CFR 1023.210, 1023.220, 1023.310,
                                                    position to ‘know the customer,’ and thus to                                                                   proposed in this notice.
                                                    identify potential money laundering concerns at the      1023.320, 1023.410, 1023.520, 1023.610, and             34 See 31 CFR 1020.210, 1020.320, 1021.210,

                                                    account opening stage, including verification of the     1023.630.                                             1021.320, 1022.210, 1022.320, 1023.210, 1023.320,
                                                                                                               31 31 U.S.C. 5318(h)(1)(A–D).
                                                    identity of the customer and deciding whether to                                                               1024.210, 1024.320, 1025.210, 1025.320, 1026.210,
                                                    open an account for a customer.’’).                        32 31 U.S.C. 5312(a)(2)(G).                         and 1026.320, respectively.



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                                                    19090                      Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules

                                                    4. Records To Be Made and Retained by                   practicable, within a reasonable time                      7. Due Diligence Anti-Money
                                                    Financial Institutions                                  before or after account opening; (3)                       Laundering Programs for Private
                                                       On January 3, 1995, FinCEN and the                   making and maintaining a record of                         Banking and Certain Foreign Accounts
                                                    Board of Governors of the Federal                       obtained information relating to identity                    31 CFR 1023.600 generally states that
                                                    Reserve System (‘‘the Board’’) jointly                  verification; (4) determining, within a                    brokers or dealers in securities are
                                                    issued a rule that requires banks and                   reasonable time after account opening or                   subject to the special standards of
                                                    nonbank financial institutions to collect               earlier, whether a customer appears on                     diligence, prohibitions, and special
                                                    and retain information on certain funds                 any list of known or suspected terrorist                   measures requirements.44 Sections
                                                    transfers and transmittals of funds (the                organizations designated by Treasury;                      1010.610, 1010.620, and 1010.630
                                                    ‘‘recordkeeping rule’’).35 At the same                  and (5) providing each customer with                       implement section 312 of the USA
                                                    time, FinCEN issued the ‘‘travel rule,’’                adequate notice, prior to opening an                       PATRIOT Act and generally apply to
                                                    which requires banks and nonbank                        account, that information is being                         any financial institution listed in 31
                                                    financial institutions to include with a                requested to verify the customer’s                         U.S.C. 5312(a)(2). Sections 1023.610 and
                                                    transmittal order certain information on                identity.38 Under certain defined                          1023.620 require U.S. financial
                                                    funds transfers and transmittals of funds               circumstances, brokers or dealers in                       institutions, including brokers or
                                                    sent to other banks or nonbank financial                securities may rely on the performance                     dealers in securities, to establish risk-
                                                    institutions.36                                         of another financial institution that also                 based due diligence policies,
                                                       The recordkeeping and travel rules                   is subject to an AML compliance                            procedures, and controls reasonably
                                                    provide uniform recordkeeping and                       program rule to fulfill some or all of the                 designed to detect and report money
                                                    transmittal requirements for financial                  requirements of the broker-dealer’s                        laundering through correspondent
                                                    institutions, and are intended to help                  CIP.39                                                     accounts and private banking accounts
                                                    law enforcement and regulatory                                                                                     that U.S. financial institutions establish
                                                    authorities detect, investigate, and                    6. Special Information Procedures To                       or maintain for non-U.S. persons.
                                                    prosecute money laundering and other                    Deter Money Laundering and Terrorist
                                                    financial crimes by preserving an                       Activity                                                   8. Prohibition on Correspondent
                                                    information trail about persons sending                                                                            Accounts for Foreign Shell Banks;
                                                    and receiving funds through the funds                      31 CFR 1023.500 states generally that                   Records Concerning Owners of Foreign
                                                    transfer system.                                        brokers or dealers in securities are                       Banks and Agents for Service of Legal
                                                       In general, the recordkeeping rule                   covered by the special information                         Process
                                                    requires financial institutions to retain               procedures to detect money laundering                         Section 313 of the USA PATRIOT Act
                                                    certain information on transmittals of                  and terrorist activity requirements.40                     amended the BSA by adding subsection
                                                    funds of $3,000 or more, which must be                  Sections 1010.520 and 1010.540                             (j) to 31 U.S.C. 5318. Sections 1010.630
                                                    retrievable and available upon request                  implement sections 314(a) and 314(b) of                    and 1023.630 implement this provision
                                                    to FinCEN, to law enforcement, and to                   the USA PATRIOT Act, respectively.                         and set forth the requirements for
                                                    regulators to whom FinCEN has                              Under the section 314(a)                                brokers and dealers in securities. The
                                                    delegated the BSA compliance                            requirements, brokers or dealers in                        regulations prohibit covered financial
                                                    examination authority. Under the travel                 securities must respond to requests for                    institutions from providing
                                                    rule, a financial institution acting as the             information made by FinCEN on behalf                       correspondent accounts in the United
                                                    transmittor’s financial institution must                of Federal, state, and local law                           States to foreign shell banks (i.e., banks
                                                    obtain and include in the transmittal                   enforcement agencies, or a similar                         without a physical presence in any
                                                    order certain information on                                                                                       country) and to take reasonable steps to
                                                                                                            request from FinCEN on its own behalf,
                                                    transmittals of funds of $3,000 or more.                                                                           ensure that correspondent accounts
                                                                                                            on behalf of certain components of
                                                    5. Customer Identification Program                      Treasury, or on behalf of certain foreign                  provided to foreign banks are not being
                                                                                                                                                                       used to provide banking services to
                                                       31 CFR 1023.220 sets forth the                       law enforcement agencies.41 Upon
                                                                                                                                                                       foreign shell banks indirectly.45 The
                                                    customer identification program (‘‘CIP’’)               receiving such a request, a broker or
                                                                                                                                                                       statutory and regulatory definitions of
                                                    requirements for brokers or dealers in                  dealer in securities is required to search
                                                                                                                                                                       covered financial institutions include a
                                                    securities, which would include                         its records to determine whether it has                    broker or dealer in securities.46 Brokers
                                                    funding portals with the proposed                       accounts for, or has engaged in                            and dealers in securities must comply
                                                    amendments. Under the rule published                    transactions with, any specified                           with this regulation with respect to any
                                                    jointly with the SEC,37 brokers or                      individual, entity, or organization.42                     account they provide in the United
                                                    dealers in securities must establish a                  Under the regulation implementing                          States to a foreign bank that permits the
                                                    written CIP that, at a minimum,                         section 314(b), brokers or dealers in                      foreign bank to engage in securities
                                                    includes procedures for: (1) Obtaining                  securities are authorized to share                         transactions, funds transfers, or other
                                                    customer identifying information from                   information with one another, under a                      financial transactions through that
                                                    each customer prior to account opening;                 safe harbor that offers protections from                   account.
                                                    (2) verifying the identity of each                      liability, in order to better identify and                    Section 319(b) of the USA PATRIOT
                                                    customer to the extent reasonable and                   report potential money laundering or                       Act amended the BSA by adding
                                                                                                            terrorist activities.43                                    subsection (k) to 31 U.S.C. 5318, which
                                                       35 31 CFR 1020.410(a) (recordkeeping
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                                                                                                                                                                       requires any covered financial
                                                    requirements for banks); 31 CFR 1010.410(e)
                                                    (recordkeeping requirements for nonbank financial
                                                                                                              38 31    CFR 1023.220(a)(6).                             institution that provides a
                                                                                                              39 Id.
                                                    institutions). The Board revised its Regulation S (12
                                                                                                              40 These requirements are set forth and cross
                                                    CFR part 219) to incorporate by reference the                                                                        44 These requirements are set forth and cross

                                                    recordkeeping rule codified in Title 31 of the CFR,     referenced in sections 1023.520 (cross referencing         referenced in sections 1023.610 (cross referencing
                                                    as well as to impose a five-year record-retention       to 31 CFR 1010.520) and 1023.540 of 31 CFR (cross-         to 31 CFR 1010.610), 1023.620 (cross-referencing to
                                                    requirement with respect to the recordkeeping           referencing to 31 CFR 1010.540).                           31 CFR 1010.620), and 1023.630 of 31 CFR (cross-
                                                    requirements.                                             41 31 CFR 1010.520(b).                                   referencing to 31 CFR 1010.630).
                                                       36 31 CFR 1010.410(f).                                 42 31 CFR 1010.520(b)(3).                                  45 See 31 CFR 1010.630.
                                                       37 68 FR 25113 (May 9, 2003).                          43 31 CFR 1023.540.                                        46 See 31 U.S.C. 5318(j)(1) and 5312(a)(2).




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                                                                               Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules                                               19091

                                                    correspondent account to a foreign bank                   compliance with FinCEN’s regulations.                   specifically seeks comments on the
                                                    to maintain records of the foreign bank’s                 FinCEN has delegated to the SEC the                     following questions:
                                                    owners and any agent in the United                        authority to examine brokers or dealers                   • Is the application of all BSA
                                                    States designated to accept service of                    in securities, which would include                      regulations currently covering brokers
                                                    legal process for records regarding the                   funding portals, for compliance with                    or dealers in securities to funding
                                                    correspondent account. While the rule                     FinCEN regulations.49                                   portals appropriate?
                                                    does not prescribe the manner in which                                                                              • Are there exceptions to the
                                                    a covered financial institution must                      III. Section-by-Section Analysis                        regulations that should be granted to
                                                    obtain the required information, it does                     This NPRM proposes to revise the                     funding portals? If so, why would any
                                                    provide a safe harbor if a covered                        regulations implementing the BSA by                     such exceptions be appropriate?
                                                    financial institution obtains from the                    amending the definition of ‘‘broker or                  V. Executive Orders 12866 and 13563
                                                    foreign bank the model certification                      dealer in securities’’ and its
                                                    provided on FinCEN’s public Web                           synonymous term ‘‘broker-dealer’’ to                       Executive Orders 12866 and 13563
                                                    site.47 The rule requires covered                         specifically include funding portals that               direct agencies to assess all costs and
                                                    financial institutions to verify the                      are involved in the offering or selling of              benefits of available regulatory
                                                    information previously provided by                        crowdfunding securities pursuant to                     alternatives and, if regulation is
                                                    each foreign bank for which it maintains                  section 4(a)(6) of the Securities Act of                necessary, to select regulatory
                                                    a correspondent account at least once                     1933 (15 U.S.C. 77d(a)(6)). These terms                 approaches that maximize net benefits
                                                    every two years.                                          are defined in three different places, and              (including potential economic,
                                                                                                              phrased slightly differently for each, but              environmental, public health and safety
                                                    9. Special Measures Under Section 311                                                                             effects, distributive impacts, and
                                                    of the USA PATRIOT Act                                    are substantively the same:
                                                                                                                 • In 31 CFR 1010.100(h), a ‘‘broker or               equity). Executive Order 13563
                                                       Section 311 of the USA PATRIOT Act                     dealer in securities’’ is defined as ‘‘[a]              emphasizes the importance of
                                                    (‘‘section 311’’) added section 5318A to                  broker or dealer in securities, registered              quantifying both costs and benefits, of
                                                    the BSA, granting FinCEN the authority                    or required to be registered with the                   reducing costs, of harmonizing rules,
                                                    to require domestic financial                             Securities and Exchange Commission                      and of promoting flexibility. It has been
                                                    institutions and financial agencies to                    under the Securities Exchange Act of                    determined that this proposed rule is a
                                                    take certain ‘‘special measures’’ upon                    1934, except persons who register                       significant regulatory action, although
                                                    finding that reasonable grounds exist for                 pursuant to section 15(b)(11) of the                    not economically significant, for
                                                    concluding that a foreign jurisdiction,                   Securities Exchange Act of 1934.’’                      purposes of Executive Orders 12866 and
                                                    institution, class of transaction, or type                   • 31 CFR 1010.605(e)(1)(viii) and                    13563.
                                                    of account is of ‘‘primary money                          (e)(2)(viii) refer to ‘‘[a] broker or dealer            VI. Unfunded Mandates Act of 1995
                                                    laundering concern.’’ To address the                      in securities registered, or required to be             Statement
                                                    specific money laundering risks, section                  registered, with the Securities and
                                                    311 provides a range of special                                                                                      Section 202 of the Unfunded
                                                                                                              Exchange Commission under the
                                                    measures that can be imposed                                                                                      Mandates Reform Act of 1995
                                                                                                              Securities Exchange Act of 1934 (15
                                                    individually, jointly, in any                                                                                     (‘‘Unfunded Mandates Act’’), Public
                                                                                                              U.S.C. 78a et seq.), except persons who
                                                    combination, and in any sequence.48                                                                               Law 104–4 (March 22, 1995), requires
                                                                                                              register pursuant to section 15(b)(11) of
                                                       Under 31 CFR 1010.810(a), ‘‘[o]verall                                                                          that an agency prepare a budgetary
                                                                                                              the Securities Exchange Act of 1934.’’
                                                    authority for enforcement and                                                                                     impact statement before promulgating a
                                                                                                                 • In 31 CFR 1023.100(b), a ‘‘broker-
                                                    compliance, including coordination and                                                                            rule that may result in expenditure by
                                                                                                              dealer’’ is defined to mean ‘‘a person
                                                    direction of procedures and activities of                                                                         the state, local, and tribal governments,
                                                                                                              registered or required to be registered as
                                                    all other agencies exercising delegated                                                                           in the aggregate, or by the private sector,
                                                                                                              a broker or dealer with the Commission
                                                    authority under this chapter, is                                                                                  of $100 million or more in any one year.
                                                                                                              under the Securities Exchange Act of
                                                    delegated [by the Secretary] to the                                                                               If a budgetary impact statement is
                                                                                                              1934 (15 U.S.C. 77a et seq.), except
                                                    Director, FinCEN.’’ In turn, Federal                                                                              required, section 202 of the Unfunded
                                                                                                              persons who register pursuant to 15
                                                    functional regulators have been                                                                                   Mandates Act also requires an agency to
                                                                                                              U.S.C. 78o(b)(11).’’ 50
                                                    delegated authority to examine certain                                                                            identify and consider a reasonable
                                                                                                                 FinCEN proposes to amend these
                                                    financial institutions they oversee for                                                                           number of regulatory alternatives before
                                                                                                              definitions by adding to each the phrase
                                                                                                                                                                      promulgating a rule. Since there is no
                                                                                                              ‘‘a person registered, or required to be
                                                       47 Certification Regarding Correspondent                                                                       change to the requirements imposed
                                                                                                              registered, as a funding portal with the
                                                    Accounts for Foreign Banks, available at: http://                                                                 under existing regulations, FinCEN has
                                                    www.fincen.gov/forms/files/Certification%20               Securities and Exchange Commission
                                                                                                                                                                      determined that it is not required to
                                                    Regarding%20Correspondent%20                              under section 4(a)(6) of the Securities
                                                    Accounts%20for%20Foreign%20Banks.pdf;                                                                             prepare a written statement under
                                                                                                              Act of 1933 (15 U.S.C. 77d(a)(6)).’’
                                                    Certification Regarding Correspondent Accounts for                                                                section 202.
                                                    Foreign Banks, available at: http://www.fincen.gov/
                                                                                                              FinCEN further proposes to make
                                                    forms/files/Recertification%20                            technical amendments to each                            VII. Regulatory Flexibility Act
                                                    Regarding%20Correspondent%20                              definition to create one standard                          The Regulatory Flexibility Act
                                                    Accounts%20for%20Foreign%20Banks.pdf.                     definition of the terms ‘‘broker or dealer
                                                       48 Available special measures include requiring:                                                               (‘‘RFA’’) (5 U.S.C. 601 et seq.) requires
                                                                                                              in securities’’ and ‘‘broker-dealer’’ to be             that a regulation that has a significant
                                                    (1) Recordkeeping and reporting of certain financial
                                                                                                              used throughout the regulations.                        economic impact on a substantial
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                                                    transactions; (2) collection of information relating to
                                                    beneficial ownership; (3) collection of information                                                               number of small entities, small
                                                    relating to certain payable-through accounts; (4)
                                                                                                              IV. Request for Comment
                                                    collection of information relating to certain
                                                                                                                                                                      businesses, or small organizations must
                                                                                                                 FinCEN invites comment on any and                    include an initial regulatory flexibility
                                                    correspondent accounts; and (5) prohibition or
                                                    conditions on the opening or maintaining of
                                                                                                              all aspects of the NPRM, and                            analysis describing the regulation’s
                                                    correspondent or payable through accounts. 31                                                                     impact on small entities. Such an
                                                                                                                49 31  CFR 1010.810(b)(6).
                                                    U.S.C. 5318A(b)(l)–(5). For a complete discussion of
                                                    the range of possible countermeasures, see 68 FR            50 FinCEN   is also amending this section of the
                                                                                                                                                                      analysis need not be undertaken if the
                                                    18917 (April 17, 2003) (proposing special measures        rule to reflect the correct citation of 15 U.S.C. 78a   agency has certified that the regulation
                                                    against Nauru).                                           et seq. currently published as 15 U.S.C. 77a et seq.    will not have a significant economic


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                                                    19092                       Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules

                                                    impact on a substantial number of small                   that there are 871 broker-dealers that are             securities to incorporate funding
                                                    entities (5 U.S.C. 605(b)).                               classified as ‘‘small’’ entities for                   portals, to ensure consistent
                                                       Section 601(3) of the RFA states that                  purposes of the RFA.54 The SEC applied                 applicability of the BSA regulations to
                                                    the term ‘‘small business’’ has the same                  comparable criteria to funding portals                 all brokers in securities.
                                                    meaning as the term ‘‘small business                      that would register under the SEC’s
                                                    concern’’ under section 3 of the Small                                                                           2. Small Entities Affected by the
                                                                                                              Crowdfunding rule.
                                                    Business Act, unless an agency, after                        Relying on the SEC’s definition has                 Proposed Regulation
                                                    consultation with the Office of                           the benefit of ensuring consistency in                    While the proposed BSA
                                                    Advocacy of the Small Business                            the categorization of small entities for               requirements would impose burdens on
                                                    Administration and after opportunity                      SEC examiners, as well as providing the                funding portals, the proposed rules
                                                    for public comment, establishes one or                    broker or dealer industry with a uniform               would not impose any burden on
                                                    more definitions of such term which are                   standard. In addition, FinCEN’s                        funding portals in addition to those
                                                    appropriate for the activities of the                     proposed use of the SEC’s definition of                already imposed on broker-dealers.
                                                    agency and publishes such definition(s)                   small entity will have no material                     Consequently, we do not discuss those
                                                    in the Federal Register. The Small                        impact upon the application of these                   burdens here, and we would not be
                                                    Business Administration’s (‘‘SBA’’)                       proposed rules to the broker or dealer                 requesting any separate approval from
                                                    defines a broker dealer industry to be a                  industry. FinCEN requests comment on                   OMB to impose the burdens associated
                                                    small entity as having ‘‘annual receipts’’                the appropriateness of using the SEC’s                 with the information collection
                                                    of $38.5 million.51 However, FinCEN is                    definition of small entity.                            requirements to comply with the
                                                    concerned that using the SBA size                            The proposed changes are intended to                requirements of 31 CFR 1023, including
                                                    standard rather than the SEC size                         amend the regulatory definition of                     the BSA/AML program, CTR, SAR, CIP,
                                                    standard may result in confusion.                         broker or dealer in securities to include              Recordkeeping and travel rules, Due
                                                    Accordingly, FinCEN consulted with                        funding portals in light of the JOBS Act               Diligence Programs for Correspondent
                                                    the SBA’s Office of Advocacy. After                       and the Final SEC Crowdfunding Rules.                  Accounts for Foreign Financial
                                                    consultation, FinCEN is proposing to                      While these amendments do not alter a                  Institutions and Private Bank accounts,
                                                    define the term small entity in                           broker or dealer in securities existing                Prohibition on Correspondent Account
                                                    accordance with definitions obtained                      obligations, they will expand the BSA                  for Shell Banks, section 311, and section
                                                    from SEC rules implementing the                           regulations to create obligations for                  314 requirements.
                                                    Securities Exchange Act,52 in lieu of                     funding portals. Accordingly, FinCEN                      The requirements of this proposed
                                                    using the Small Business                                  has prepared an initial regulatory                     regulation, which are consistent with
                                                    Administration’s definition.53 The SEC                    flexibility analysis pursuant to the                   the existing requirements for brokers or
                                                    defines an entity as a small broker or                    Regulatory Flexibility Act. A final                    dealers in securities, would include
                                                    dealer, for purposes of the RFA, if it: (1)               regulatory flexibility analysis will be                funding portals regardless of size. Based
                                                    Had total capital (net worth plus                         conducted after consideration of                       on SEC analysis of the estimated 50
                                                    subordinated liabilities) of less than                    comments received during the public                    funding portals in the first year
                                                    $500,000 on the date in the prior fiscal                  comment period.                                        expected to register with the SEC, as a
                                                    year as of which its audited financial                    1. Statement of the Need for, and                      result of the JOBS Act and
                                                    statements were prepared pursuant to                      Objectives of, the Proposed Regulation                 implementing regulations, 30 would be
                                                    Rule 17a–5(d) or, if not required to file                                                                        classified as ‘‘small’’ entities for
                                                    such statements, a broker or dealer that                     The JOBS Act creates a                              purposes of the Regulatory Flexibility
                                                    had total capital (net worth plus                         comprehensive regulatory structure for                 Act.55
                                                    subordinated debt) of less than $500,000                  startups and small businesses to raise
                                                                                                              capital through securities offerings                   3. Compliance Requirements
                                                    on the last business day of the preceding
                                                    fiscal year (or in the time that it has                   using the Internet through                                Upon finalization of this proposal,
                                                    been in business if shorter); and (2) is                  crowdfunding. It also establishes the                  registered funding portals would be
                                                    not affiliated with any person (other                     regulation of registered funding portals               required to comply with all of the
                                                    than a natural person) that is not a small                and brokers that are required to act as                requirements of the BSA, including the
                                                    business or small organization as                         intermediaries in the offer and sale of                reporting, recordkeeping, and record
                                                    defined in this release. The proposed                     crowdfunded securities. The JOBS Act                   retention requirements that apply to
                                                    rules would define broker or dealer in                    amends the Federal securities laws to                  entities currently defined as brokers or
                                                    securities as: (1) A person registered, or                include certain funding portals, defined               dealers in securities. We recognize that
                                                    required to be registered, as a broker or                 as any person acting as an intermediary                the proposed rules would impose costs
                                                    dealer with the Securities and Exchange                   in a transaction involving the offer or                on funding portals to implement AML
                                                    Commission under the Securities                           sale of securities for the account of                  procedures, but we believe that the
                                                    Exchange Act of 1934 (15 U.S.C. 78a et                    others solely pursuant to section 4(a)(6)              proposed amendments and
                                                    seq.), except persons who register                        of the Securities Act, but that is                     requirements provide important
                                                    pursuant to section 15(b)(11) of the                      exempted from the requirement to                       benefits. As noted in the SEC NPRM,
                                                    Securities Exchange Act of 1934 (15                       register as a broker-dealer with the SEC,              low-priced and privately-placed
                                                    U.S.C. 78o(b)(11)); or (2) a person,                      and is instead required to be registered               securities pose a money laundering risk
                                                    registered, or required to be registered,                 as a funding portal with the SEC. This                 because they are susceptible to market
                                                                                                              proposed regulation is necessary to
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                                                    as a funding portal with the Securities                                                                          manipulation and fraud.56 Requiring
                                                    and Exchange Commission under                             expand the scope of the regulatory                     funding portals to comply with BSA
                                                    section 4(a)(6) of the Securities Act of                  definition of broker or dealer in                      regulations, in particular the
                                                    1933 (15 U.S.C. 77d(a)(6). Based on                                                                              requirement to file SARs, helps identify
                                                                                                                54 FOCUS Reports, or ‘‘Financial and Operational
                                                    FOCUS Report data, the SEC estimated                                                                             potentially fraudulent activity for law
                                                                                                              Combined Uniform Single’’ Reports, are monthly,
                                                                                                              quarterly, and annual reports that broker-dealer
                                                                                                                                                                     enforcement and regulators. These AML
                                                      51 Id.
                                                                                                              generally are required to file with the SEC and or
                                                      52 17    CFR 240.0–10c.                                                                                         55 See   80 FR 71387, 71533 (Nov. 16, 2015).
                                                                                                              self-regulatory organizations pursuant to Exchange
                                                      53 13    CFR 121.201.                                   Act Rule 17a–5 (17 CFR 240.17a–5).                      56 See   78 FR 66428, 66490–66491 (Nov. 5, 2013).



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                                                                              Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules                                                     19093

                                                    requirements would therefore help to                    limited. According to the SEC, an                      requirement, OMB Control Number
                                                    protect market participants from illegal                industry survey of crowdfunding                        1506–0043 for the Prohibitions on
                                                    activity that could potentially infiltrate              platforms reported that 191 platforms                  Correspondent Accounts for Foreign
                                                    new online investment opportunities.                    were estimated to be operating in the                  Shell Banks requirement, OMB Control
                                                    Requiring the implementation of AML                     United States as of 2012.57 Based on 135               Number 1506–0049 for the section 314
                                                    procedures in turn provides potential                   participants in the survey both in the                 requirement, and OMB Control Number
                                                    investors with some degree of                           United States and international                        1506–0053 for the Recordkeeping and
                                                    confidence that adequate protections                    jurisdictions, 15% of funding portal                   travel rules requirements). Under the
                                                    against illegal activity exist for this new             platforms were engaged in securities-                  PRA, an agency may not conduct or
                                                    fundraising approach and could                          based crowdfunding.58 Although the                     sponsor, and a person is not required to
                                                    encourage more investors to participate,                number of intermediaries that may                      respond to, a collection of information
                                                    thus facilitating capital formation.                    ultimately register as funding portal is               unless it displays a currently valid OMB
                                                      The proposed regulations would                        uncertain, it is likely that three to four             control number. Certain provisions of
                                                    require funding portals to develop                      of the crowdfunding platforms that have                the proposed rules contain ‘‘collection
                                                    programs reasonably designed to                         the majority of market share in reward-                of information’’ requirements within the
                                                    comply with the BSA and to collect and                  based and donation-based                               meaning of the PRA. This proposal
                                                    keep certain information, as well as                    crowdfunding would most likely obtain                  intends to expand the scope of financial
                                                    report suspicious activity, among other                 the majority of market share in the                    institutions subject to the BSA
                                                    reports. While the proposed regulations                 securities-based crowdfunding market                   regulations FinCEN issued for brokers or
                                                    would not change the scope of                           based on section 4(a)(6).59 The BSA                    dealers in securities to include funding
                                                    compliance with the BSA requirements                    regulations are risk-based and are                     portals. The collections of information
                                                    for brokers or dealers in securities that               designed so that entities that are subject             included under OMB Control Number
                                                    are not funding portals, the reporting,                 to the regulations can implement a                     1506–0004 for the CTR requirement,
                                                    recordkeeping, and other compliance                     program that is commensurate with the                  OMB Control Number 1506–0019 for the
                                                    requirements of the proposed regulation                 risks posed by their particular business.              SAR requirement, OMB Control Number
                                                    would impact small entities that decide                 FinCEN expects that a small funding                    1506–0034 for the CIP requirement,
                                                    to register as funding portals. While the               portal would implement a risk-based                    OMB Control Number 1506–0043 for the
                                                    majority of these requirements would be                 compliance program that takes into                     Prohibitions on Correspondent
                                                    performed by the funding portal’s                       account the limited business activities                Accounts for Shell Banks requirement,
                                                    internal compliance personnel, some                     in which the business participates. For                OMB Control Number 1506–0049 for the
                                                    funding portals may choose to hire                      example, a funding portal could                        section 314 requirement, and OMB
                                                    outside counsel and third-party service                 implement a risk-based compliance                      control number 1506–0053 for the
                                                    providers to assist in meeting the                      program which reflects the fact that the               Recordkeeping and travel rules
                                                    compliance requirements.                                business does not accept cash or                       requirements, respectively would be
                                                    4. Duplicative, Overlapping, or                         securities from its customers. Therefore,              amended to reflect related burdens
                                                    Conflicting Federal Rules                               we believe that the proposed rules are                 under the proposed rules.
                                                                                                            appropriate, and properly cover all
                                                       FinCEN believes that there are no                    brokers or dealers in securities,                      1. Description of Affected Financial
                                                    Federal rules that duplicate, overlap, or               including funding portals. Furthermore,                Institutions
                                                    conflict with the proposed regulations                  FinCEN believes that having different                     Funding portals registered or required
                                                    or the proposed amendments.                             requirements for funding portals could                 to be registered with the SEC.
                                                    5. Significant Alternatives to the                      undermine the objectives of the                        2. Estimated Number of Affected
                                                    Proposed Regulations                                    proposed requirements.                                 Financial Institutions
                                                                                                               FinCEN welcomes comment on any
                                                       FinCEN considered whether it would                   significant alternatives that would                       According to the SEC, as of 2014,
                                                    be appropriate to establish different                   minimize the impact of the proposal on                 there are approximately 200 U.S.-based
                                                    compliance or reporting obligations for                 small funding portal entities.                         crowdfunding portals in existence.
                                                    small funding portals in the proposal, or                                                                      Approximately 15% of these
                                                    whether small funding portals should be                 VIII. Paperwork Reduction Act                          crowdfunding portals would participate
                                                    exempt from any parts of the proposed                      The collection of information                       in securities-based crowdfunding. The
                                                    rules or even from the rules in their                   requirements have been reviewed and                    SEC estimates that the number of
                                                    entirety. While the proposed rules are                  approved by the Office of Management                   crowdfunding portals would grow at
                                                    based on existing compliance                            and Budget (‘‘OMB’’) under section                     60% per year over the next three years
                                                    requirements applicable to registered                   3507 of the Paperwork Reduction Act of                 and that approximately 50 entities
                                                    brokers or dealers in securities, FinCEN                1995 (‘‘PRA’’) (44 U.S.C. 3507(d). (OMB                would register as funding portals
                                                    believes that it would not be necessary,                Control Number 1506–0004 for the CTR                   annually.60
                                                    nor would it be advisable, to establish                 requirement, the OMB Control Number                       For purposes of this analysis it should
                                                    different requirements for small funding                for the CTR report itself is 1506–0064,                be noted that the actual number of
                                                    portals that engage in crowdfunding.                    OMB Control Number 1506–0019 for the                   funding portals that would participate
                                                    Eliminating or issuing different                        SAR regulatory requirement, the OMB                    in securities-based crowdfunding
                                                    requirements for smaller funding portals                Control Number for the BSA SAR report                  transactions is uncertain, as the rules
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                                                    would not be the most effective means                   itself is 1506–0065, OMB Control                       governing securities-based
                                                    of addressing the money laundering risk                 Number 1506–0034 for the CIP                           crowdfunding transactions through
                                                    associated with securities crowdfunding                                                                        funding portals have only recently been
                                                    as it would create a loophole and a path                  57 See 78 FR 66428, 66516 (Nov. 5, 2013).            passed. Based on registration
                                                                                                              58 The survey further indicated that 11% were
                                                    of least resistance that money                                                                                 information currently available, the SEC
                                                                                                            engaged in lending-based crowdfunding, 27% in
                                                    launderers could exploit. The number of                 donation-based crowdfunding, and 47% in reward-        estimates that approximately 10
                                                    small funding portals that would be                     based crowdfunding.
                                                    affected by the proposed rules would be                   59 See 78 FR 66428, 66516 (Nov. 5, 2013).             60 See   80 FR 71387, 71523 (Nov. 16, 2015).



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                                                    19094                     Federal Register / Vol. 81, No. 64 / Monday, April 4, 2016 / Proposed Rules

                                                    intermediaries that are currently                       § 1010.100        General definitions.                  PART 1023—RULES FOR BROKERS
                                                    registered with the SEC may choose to                   *      *    *     *     *                               OR DEALERS IN SECURITIES
                                                    register as brokers to act as                             (h) Broker or dealer in securities. A
                                                    intermediaries for transactions made in                                                                         ■ 4. The authority citation for part 1023
                                                                                                            broker or dealer in securities means:                   continues to read as follows:
                                                    reliance on section 4(a)(6). In addition,
                                                                                                              (1) A person registered, or required to
                                                    approximately 50 intermediaries per                                                                                Authority: 12 U.S.C. 1829b and 1951–
                                                                                                            be registered, as a broker or dealer with
                                                    year that are registered as brokers with                                                                        1959; 31 U.S.C. 5311–5314, 5316–5332; title
                                                                                                            the Securities and Exchange                             III, section 314, Pub. L. 107–56, 115 Stat. 307.
                                                    the SEC would choose to add to their
                                                                                                            Commission under the Securities
                                                    service offerings by also becoming                                                                              ■ 5. Amend § 1023.100 by revising
                                                                                                            Exchange Act of 1934 (15 U.S.C. 78a et
                                                    crowdfunding intermediaries or funding                                                                          paragraph (b) to read as follows:
                                                                                                            seq.), except persons who register
                                                    portals.
                                                                                                            pursuant to section 15(b)(11) of the                    § 1023.100   Definitions.
                                                    3. Estimated Average Annual Burden                      Securities Exchange Act of 1934 (15                     *      *    *     *    *
                                                    Hours Per Affected Financial                            U.S.C. 78o(b)(11)); or                                    (b) Broker or dealer in securities or
                                                    Institutions, Estimated Total Annual                      (2) A person registered, or required to               broker-dealer means:
                                                    Burden                                                  be registered, as a funding portal with                   (1) A person registered, or required to
                                                      As this is a new requirement, the                     the Securities and Exchange                             be registered, as a broker or dealer with
                                                    estimated average burden associated                     Commission under section 4(a)(6) of the                 the Securities and Exchange
                                                    with the recordkeeping requirement in                   Securities Act of 1933 (15 U.S.C.                       Commission under the Securities
                                                    this proposed rule is three hours for                   77d(a)(6));                                             Exchange Act of 1934 (15 U.S.C. 78a et
                                                    development of a written program. A                     *      *    *     *     *                               seq.), except persons who register
                                                    one hour per year burden is recognized                  ■ 3. Amend § 1010.605 by revising                       pursuant to section 15(b)(11) of the
                                                    for annual maintenance and update.                      paragraphs (e)(1)(viii) and (e)(2)(viii) to             Securities Exchange Act of 1934 (15
                                                    FinCEN believes funding portals would                   read as follows:                                        U.S.C. 78o(b)(11)); or
                                                    establish policies and procedures to                                                                              (2) A person registered, or required to
                                                    achieve compliance with the BSA                         § 1010.605        Definitions.                          be registered, as a funding portal with
                                                    requirements at the same time as it is                  *      *    *     *    *                                the Securities and Exchange
                                                    establishing policies and procedures to                   (e) * * *                                             Commission under section 4(a)(6) of the
                                                    comply with the JOBS Act. This would                                                                            Securities Act of 1933 (15 U.S.C.
                                                                                                              (1) * * *                                             77d(a)(6)).
                                                    reduce the overall burden on funding
                                                    portals as all issues concerning the                      (viii) A broker or dealer in securities
                                                                                                            means:                                                  Jennifer Shasky Calvery,
                                                    establishment of policies and                                                                                   Director, Financial Crimes Enforcement
                                                    procedures could be addressed                             (A) A person registered, or required to               Network.
                                                    simultaneously. Nevertheless, the                       be registered, as a broker or dealer with
                                                                                                                                                                    [FR Doc. 2016–07345 Filed 4–1–16; 8:45 am]
                                                    proposed rules would not impose any                     the Securities and Exchange
                                                                                                                                                                    BILLING CODE 4810–02–P
                                                    additional burden on funding portals to                 Commission under the Securities
                                                    those currently imposed on brokers or                   Exchange Act of 1934 (15 U.S.C. 78a et
                                                    dealers. Therefore, the burden on                       seq.), except persons who register
                                                                                                            pursuant to section 15(b)(11) of the                    DEPARTMENT OF HOMELAND
                                                    funding portals would be the same as
                                                                                                            Securities Exchange Act of 1934 (15                     SECURITY
                                                    the existing burden for broker-dealers,
                                                    and would be included within those                      U.S.C. 78o(b)(11)); or
                                                                                                                                                                    Coast Guard
                                                    estimates FinCEN provided to OMB for                      (B) A person registered, or required to
                                                    brokers or dealers.                                     be registered, as a funding portal with                 33 CFR Part 117
                                                                                                            the Securities and Exchange
                                                    List of Subjects in 31 CFR Parts 1010                                                                           [Docket No. USCG–2014–1057]
                                                                                                            Commission under section 4(a)(6) of the
                                                    and 1023
                                                                                                            Securities Act of 1933 (15 U.S.C.                       RIN 1625–AA09
                                                      Authority delegations (Government                     77d(a)(6));
                                                    agencies), Banks and banking, Currency,                 *      *    *     *    *                                Drawbridge Operation Regulation;
                                                    Investigations, Law enforcement,                                                                                Norwalk River, Norwalk, CT
                                                                                                              (2) * * *
                                                    Reporting and recordkeeping
                                                                                                              (viii) A broker or dealer in securities               AGENCY: Coast Guard, DHS.
                                                    requirements.
                                                                                                            means:                                                  ACTION:Supplemental Notice of
                                                    Authority and Issuance                                    (A) A person registered, or required to               proposed rulemaking.
                                                      For the reasons set forth in the                      be registered, as a broker or dealer with               SUMMARY:   The Coast Guard proposes to
                                                    preamble, parts 1010 and 1023 of                        the Securities and Exchange                             modify the operating schedule that
                                                    Chapter X of title 31 of the Code of                    Commission under the Securities                         governs the Metro-North WALK Bridge
                                                    Federal Regulations are proposed to be                  Exchange Act of 1934 (15 U.S.C. 78a et                  across the Norwalk River, mile 0.1, at
                                                    amended as follows:                                     seq.), except persons who register                      Norwalk, Connecticut. The bridge
                                                                                                            pursuant to section 15(b)(11) of the                    owner submitted a request to require a
                                                    PART 1010—GENERAL PROVISIONS                            Securities Exchange Act of 1934 (15                     greater advance notice for bridge
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                                                                                                            U.S.C. 78o(b)(11)); or                                  openings and to increase time periods
                                                    ■ 1. The authority citation for part 1010                 (B) A person registered, or required to
                                                    continues to read as follows:                                                                                   the bridge remains in the closed
                                                                                                            be registered, as a funding portal with                 position during the weekday morning
                                                       Authority: 12 U.S.C. 1829b and 1951–                 the Securities and Exchange                             and evening rush hours. It is expected
                                                    1959; 31 U.S.C. 5311–5314, 5316–5332; title             Commission under section 4(a)(6) of the                 that this change to the regulations will
                                                    III, section 314, Pub. L. 107–56, 115 Stat. 307.        Securities Act of 1933 (15 U.S.C.                       create efficiency in drawbridge
                                                    ■ 2. Amend § 1010.100 by revising                       77d(a)(6)).                                             operations while continuing to meet the
                                                    paragraph (h) to read as follows:                       *      *    *     *    *                                reasonable needs of navigation.


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Document Created: 2016-04-02 03:54:00
Document Modified: 2016-04-02 03:54:00
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionNotice of proposed rulemaking.
DatesWritten comments on this Notice of Proposed Rulemaking (``NPRM'') must be submitted on or before June 3, 2016.
ContactFinCEN 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]
FR Citation81 FR 19086 
RIN Number1506-AB29
CFR Citation31 CFR 1010
31 CFR 1023
CFR AssociatedAuthority Delegations (government Agencies); Banks and Banking; Currency; Investigations; Law Enforcement and Reporting and Recordkeeping Requirements

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