The Office of Financial Regulation proposes to create new rules to implement Ch. 2015-171, Laws of Florida (the Florida Intrastate Crowdfunding Exemption), which was signed into law on June 17, 2015. The legislation requires the Financial Services ...

 

DEPARTMENT OF FINANCIAL SERVICES

Securities

RULE NOS.:RULE TITLES:

69W-600.0018Notice-Filing and Requirements for Florida Intrastate Crowdfunding Issuers

69W-600.0019Registration of Florida Intrastate Crowdfunding Intermediaries

69W-600.0145Requirements for Florida Intrastate Crowdfunding Intermediaries

PURPOSE AND EFFECT: The Office of Financial Regulation proposes to create new rules to implement Ch. 2015-171, Laws of Florida (the Florida Intrastate Crowdfunding Exemption), which was signed into law on June 17, 2015. The legislation requires the Financial Services Commission to implement some of its provisions by rule.

SUMMARY: The proposed new rules sets out requirements for Florida Intrastate Crowdfunding Issuers and Intermediaries.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION: The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: The Agency expressly relies on an analysis of potential economic impact conducted by persons with subject matter knowledge of this rule.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 517.03(1), 517.12(20), 517.121, 517.1611 FS.

LAW IMPLEMENTED: 517.12(20), 517.121, 517.1611 FS.

A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:

DATE AND TIME: October 26, 2015, 9:00 a.m.

PLACE: Office of Financial Regulation, Room B103, 200 East Gaines St., Fletcher Building, Tallahassee, Florida 32399

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Jodi-Ann Livingstone, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69W-600.0018 Notice-Filing and Requirements for Florida Intrastate Crowdfunding Issuers.

(1) Notice-filing.

(a) An issuer of securities under the Florida Intrastate Crowdfunding Exemption, Section 517.0611, F.S., shall file the Notice of Crowdfunding Issuer Offering (Form FL-CI) electronically on the Office of Financial Regulation (Office)’s website at https://real.flofr.com through the Regulatory Enforcement and Licensing (REAL) System.  The notice-filing shall include all information required by such form and payment of the statutory fees required by Section 517.0611(5), F.S.  The notice-filing shall be deemed received on the date the Office issues a confirmation of submission and payment to the issuer via the Office’s website.

(b) A notice-filing shall include the following:

1. Form FL-CI (10/15).  A sample form is hereby incorporated by reference and available at http://www.flrules.org/___/  or http://www.flofr.com/___ /.  The accompanying instructions to Form FL-CI, which define certain terms in Section 517.0611, F.S., are hereby incorporated by reference as part of this rule.

2. Documentation required to be uploaded in PDF form to the REAL System as part of the notice-filing, including:

a. Verification of the issuer’s organization under the laws of Florida, pursuant to Section 517.0611(5)(g), F.S.;

b. A copy of the issuer’s escrow agreement with a financial institution, pursuant to Section 517.0611(8), F.S.; and

c. A copy of the issuer’s disclosure statement, pursuant to Section 517.0611(7), F.S.

2. Statutory fee in the amount required by Section 517.0611(5), F.S.

(2) Amendment of notice-filing.  If the information contained in the Form FL-CI becomes inaccurate for any reason, the issuer shall amend the information by filing an amended Form FL-CI with the Office within thirty (30) days of the change.  Issuers shall amend information by filing the Form FL-CI electronically with the Office through the REAL System.  Failure to file amendments shall be considered a violation of Section 517.0611(6), F.S.

(3) Termination of notice-filing.  Where an issuer cancels or terminates its notice-filing for any reason, notice of such fact shall be filed electronically with the Office on the Form FL-CI through the REAL System within thirty (30) calendar days of the date of cancellation or termination.

(4) Financial statements.  For purposes of subsections 517.0611(7)(h)2. and 3., F.S.:

(a) Financial statements must be reviewed in accordance with United States generally accepted auditing standards; and

(b) Certified public accountants who prepare or review an issuer’s financial statements must meet the standards of independence described in Rule 2-01(b) and (c) of Regulation S-X (17 C.F.R. §210.2-01(b) and (c)), which is incorporated by reference in Rule 69W-200.002, F.A.C.

(5) Disclosure statement.  Certain terms used in Section 517.0611(7), F.S., regarding the disclosure statement required to be provided by the issuer, are defined in Preparing a Disclosure Statement for a Florida Intrastate Crowdfunding Offering Pursuant to Section 517.0611, Florida Statutes (Supplement CI).  Supplement CI is hereby incorporated by reference as part of this rule and is available at http://www.flrules.org/_____/ or http://www.flofr.com/____/.

Rulemaking Authority 517.03(1), 517.1611 FS. Law Implemented 517.1611 FS. History–New ________.

 

69W-600.0019 Registration of Florida Intrastate Crowdfunding Intermediaries.

(1) New Applications.

(a) Applicants for initial registration of intermediaries shall file the Application for Crowdfunding Intermediary Registration (Form FL-INT) electronically on the Office of Financial Regulation’s website at https://real.flofr.com through the Regulatory Enforcement and Licensing (REAL) System.  The application shall include all information required by such form, any other information the Office may require, and payment of the statutory fees required by Section 517.12(20), F.S.  The application shall be deemed received on the date the Office issues a confirmation to the applicant of submission and payment via the Office’s website.  Every application or amendment filed pursuant to this rule shall constitute a “written application” within the meaning of Section 517.12(20), F.S.

(b) An application shall include the following:

1. Form FL-INT (10/15) A sample form is hereby incorporated by reference and available at http://www.flrules.org/___/  or http://www.flofr.com/___ /.  The accompanying instructions to Form FL-INT, which define certain terms in Section 517.12(20), F.S., are hereby incorporated by reference as part of this rule;

2. Statutory fee in the amount required by Section 517.12(20), F.S.;

3. Documentation required to be uploaded in PDF form to the REAL System as part of the application, including a copy of the applicant’s articles of incorporation, if a corporation or limited liability company, or partnership agreement, if a partnership, pursuant to Section 517.12(20)(a)2., F.S.;

4. Any direct or indirect owner or principal required to be reported on the Form FL-INT shall comply with the fingerprinting requirements as set forth in subsection (4) of this rule, pursuant to Section 517.12(20)(b), F.S.

(2) Request for Additional Information. All information required by subsection (1) of this rule shall be submitted with the original application filing. Any request for additional documents or information shall be made by the Office within thirty (30) days after receipt of the application. The Office may require documentation to be certified by its issuer based upon the Office’s review of the nature and substance of the disciplinary history of the applicant and any officer, director, or ultimate owner in the case of a corporation or association, and any partner, co-partner, or member of the partnership in the case of a partnership. For purposes of this rule, “certified” means that there must be an original certification or attestation by the issuer of the record that the document is a true copy of a record contained in its office and its seal, if any. Additional information shall be submitted directly with the Office within sixty (60) days after a request has been made by the Office. Failure to respond to such request within sixty (60) days after the date of the request may be construed by the Office as grounds for denial of an application in accordance with the provisions of Section 120.60(1), F.S.

(3) Amendment of Application.  Pursuant to Section 517.12(2)(c), F.S. if the information contained in any application for registration as an intermediary or in any amendment thereto, becomes inaccurate for any reason, the intermediary shall file an amendment on the Form FL-INT, correcting such information within 30 days. Applicants and registrants shall file such amendments directly with the Office electronically through the REAL System.  Requests to make changes which are material to the application or to the Office’s evaluation of the application filed at any time after the application has been received may be deemed by the Office to be grounds for denial, and a new application, accompanied by the appropriate filing fee, may be required.

(4) Fingerprint Requirements.  Fingerprints filed in accordance with Section 517.12(20), F.S., shall be submitted to the Office through a live scan vendor approved by the Florida Department of Law Enforcement (FDLE) and published on FDLE’s website for submission to FDLE and the Federal Bureau of Investigation (FBI) for a state criminal background check and a federal criminal background check. The cost of fingerprint processing shall be borne by the applicant and paid directly to the live scan vendor.

(5) Annual Renewal Requirements. 

(a) Each intermediary renewing its registration shall pay all renewal fees as required by Section 517.12(20)(e), F.S.  Renewal fees for intermediaries shall be filed electronically on the Office’s website at https://real.flofr.com through the REAL System and shall be deemed received on the date the Office issues a confirmation of submission and payment to the applicant via the Office’s website. All renewal fees must be received by the Office by December 31 of the year the registration expires.

(b) Failure to submit the requisite amount of fees as provided for in paragraph (5)(a) by December 31 of the year of expiration of the registration shall result in the intermediary’s registration not being renewed. If December 31 falls on a Saturday, Sunday or legal holiday pursuant to Section 110.117, F.S., the renewals received on the next business day shall be considered timely received. However, an expired registration may be reinstated in accordance with Section 517.12(20)(e), F.S., provided that all requisite information and fees are filed electronically on the Office’s website at www.flofr.com through the REAL System on or before January 31 of the year following the year of expiration. Failure to submit the requisite amount of fees necessary to reinstate registration by January 31 of the year following the year of expiration shall result in such registration not being reinstated. If January 31 falls on a Saturday, Sunday, or legal holiday pursuant to Section 110.117, F.S., the reinstatement received on the next business day shall be considered timely received. If the renewal or reinstatement is withdrawn or not granted, any fees filed to renew or reinstate registration or notice-filing shall be deposited into the Regulatory Trust Fund of the office and shall not be returnable.

(6) Termination of Registration as Intermediary.

(a) Where a registrant withdraws, cancels, or otherwise terminates registration, or is terminated for any reason, notice of such fact shall be electronically filed with the Office through the REAL System using the Form FL-INT within thirty (30) calendar days of the date of termination.

(b) The Office may deny any request to terminate or withdraw any application or registration as provided under Section 517.161(5), F.S.

(7) Notice of Civil, Criminal or Administrative Action.  An intermediary shall:

(a) Notify the Office within thirty (30) calendar days of the date a complaint is served, of any civil, criminal or administrative charges filed against the firm or owner which directly or indirectly relate to the registration or sale of securities, or which directly or indirectly relate to the activities as a dealer, investment adviser, principal or agent, or any other activity where a breach of a fiduciary trust is alleged. This shall not include minor traffic violations; but shall include any notification of investigation by any recognized regulatory agency;

(b) Notify the Office within thirty (30) calendar days of the date filed, any answer or reply to any complaint filed as outlined in paragraph (7)(a);

(c) Notify the Office within thirty (30) calendar days of the date of decision, order, or sanction rendered, or any appeal filed with respect to such decision with regard to any complaint outlined in paragraph (10)(a).

(d) File with the Office one (1) copy of such complaint, answer or reply, decision, order, or sanction at the time of notification in accordance with paragraphs (7)(a), (7)(b), and (7)(c).  An intermediary shall file such notifications with the Office through the REAL System in accordance with this rule.

Rulemaking Authority 517.03(1), 517.12(20), 517.1611 FS. Law Implemented 517.12(20), 517.1611 FS. History–New ________.

 

69W-600.00145 Requirements for Florida Intrastate Crowdfunding Intermediaries.

(1) Requirements of intermediaries to reduce risk of fraud.  Pursuant to Section 517.0611(13)(a), F.S., an intermediary must take measures to reduce the risk of fraud with respect to transactions.  Such measures include denying or removing an issuer’s access to the intermediary’s platform if:

(a) The issuer fails to either provide the intermediary, or to potential investors through the intermediary’s platform, the disclosure statement required under Section 517.0611(7), F.S.;

(b) The issuer fails to have an escrow agreement with a financial institution as required under Subsections 517.0611(4)(f) and (8), F.S., in order for the intermediary to comply with its duties under Subsections 517.0611(13)(f) and (g) and (15), F.S.;

(c) The intermediary has knowledge that the issuer is disqualified from conducting an offering under Section 517.0611, F.S., pursuant to Subsection 517.0611(4)(a), (c), (d), or (e), F.S.; or

(d) The intermediary has knowledge that the issuer has made material false statements or material omissions to investors or potential investors through the intermediary’s platform.

(2) Books and records requirements.

(a) Generally. An intermediary shall make and preserve the following records for five years, the first two years in an easily accessible place:

1. All records related to an investor who purchases or attempts to purchase securities through the intermediary;

2. All records related to issuers who offer and sell or attempt to offer and sell securities through the intermediary and the control persons of such issuers;

3. Records of all communications that occur on or through its platform;

4. All records related to persons that use communication channels provided by the intermediary to promote an issuer’s securities or communicate with potential investors;

5. All records required to demonstrate compliance with the requirements of this rule;

6. All notices provided by the intermediary to issuers and investors generally through the intermediary’s platform or otherwise, including, but not limited to, notices addressing hours of the intermediary’s operations (if any), intermediary malfunctions, changes to intermediary procedures, maintenance of hardware and software, instructions pertaining to access to the intermediary’s platform and denials of, or limitations on, access to the intermediary’s platform;

7. All written agreements (or copies thereof) entered into by the intermediary relating to its business as such;

8. All daily, monthly and quarterly summaries of transactions effected through the intermediary’s platform, including:

a. Issuers for which the target offering amount has been reached and funds distributed; and

b. Transaction volume, expressed in: number of transactions; number of securities involved in a transaction; total amounts raised by, and distributed to, issuers; and total dollar amounts raised across all issuers, expressed in U.S. dollars; and

9. A log reflecting the progress of each issuer who offers or sells securities through the intermediary’s platform toward meeting the target offering amount.

(b) Organizational Documents. An intermediary shall make and preserve during the operation of the intermediary and of any successor intermediary, all organizational documents relating to the intermediary, including but not limited to, partnership agreements, articles of incorporation or charter, minute books and stock certificate books (or other similar type documents).

(c) Format. The records required to be maintained and preserved pursuant to paragraph (9)(a) of this rule must be produced, reproduced, and maintained in the original, non-alterable format in which they were created.

(d) Third Parties. The records required to be made and preserved pursuant to this section may be prepared or maintained by a third party on behalf of an intermediary. An agreement with an intermediary shall not relieve an intermediary from the responsibility to prepare and maintain records as specified in this rule.

(e) Review of Records. All records of an intermediary are subject at any time, or from time to time, to reasonable periodic, special, or other examination by the representatives of the Office.

(f) Financial Recordkeeping and Reporting of Currency and Foreign Transactions. Every intermediary, as it is subject to the requirements of the Currency and Foreign Transactions Reporting Act of 1970 (15 U.S.C. 5311 et seq.), shall comply with the reporting, recordkeeping and record retention requirements of 31 CFR chapter X. Where 31 CFR chapter X and §§ 227.404(a) and 404(b) require the same records or reports to be preserved for different periods of time, such records or reports shall be preserved for the longer period of time.

(3) Additional forms of identification; verification of investors.  An intermediary shall obtain evidence of residency within Florida from each investor before the purchase of a security.  An affirmative representation made by a prospective investor that the prospective investor is a Florida resident and proof of at least one of the following would be considered sufficient evidence that the individual is a resident of this state:

(a) A valid Florida driver license or official personal identification card issued by the State of Florida;

(b) A current Florida voter registration; or

(c) General property tax records showing the individual owns and occupies property in this state as his or her principal residence.

The intermediary shall verify the evidence of residency through an independent or governmental source.  A record of the method used to verify Florida residency is required to be maintained by the intermediary.

Rulemaking Authority 517.03(1), 517.121, 517.1611 FS. Law Implemented 517.121, 517.1611 FS. History–New ________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Pamela Epting, Director, Division of Securities

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: September 01, 2015

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: August 19, 2015