FINRA Rules for Capital-Raising Intermediaries: A Guide

FINRA rules for capital-raising intermediaries are the conduct, disclosure, supervision and filing requirements that apply when a FINRA member firm, or a funding portal registered with FINRA, helps a company sell securities to investors. They sit on top of the federal securities laws and the SEC’s own rules, and they apply whether the firm is underwriting a public offering, placing securities privately or running a crowdfunding platform.

In brief

• A firm that raises capital for others generally acts as a broker-dealer and must be a FINRA member unless an exception applies.
• FINRA’s corporate financing rules review underwriting compensation and require filings for many offerings.
• Private placement rules focus on disclosure, conflicts of interest and the use of proceeds.
• Sales practice rules, including Regulation Best Interest (Reg BI), apply when a firm recommends securities to retail customers.
• Funding portals have their own, lighter rule set.

Who counts as a capital-raising intermediary

An intermediary in this context is any firm that stands between an issuer that needs money and investors who supply it. Investment banks that underwrite initial public offerings are the familiar example. The category is wider than that. Placement agents who find investors for a private fund, firms that run Regulation A or Regulation D offerings for small companies, and online platforms that host crowdfunding campaigns all fit.

Federal law draws the dividing line. Under the Securities Exchange Act of 1934, a person engaged in the business of effecting securities transactions for the account of others is a broker, and a person trading for its own account as part of a regular business is a dealer. Firms in either position must register with the SEC and, in nearly all cases, join FINRA. Crowdfunding intermediaries that operate only as funding portals under Regulation Crowdfunding register separately and become FINRA members under a tailored set of rules.

Readers new to the topic can pair this guide with our explainers on broker-dealer registration and what FINRA does.

The layers of regulation

Three layers apply at once, and mixing them up is a common source of confusion.

1. Statutes. The Securities Act of 1933 governs the offering itself: whether it must be registered or can rely on an exemption. The Exchange Act governs the intermediary: registration, record-keeping, supervision and anti-fraud duties.
2. SEC rules. These include the net capital rule, customer protection rules, Regulation Best Interest and the rules that define the exemptions issuers use. They are codified in Title 17 of the Code of Federal Regulations and can be searched on eCFR.
3. FINRA rules. FINRA, a self-regulatory organization registered with the SEC, writes its own rulebook for members. These rules are often more specific than SEC rules and are enforced through examinations and disciplinary actions.

A single offering can trigger all three. A private placement of a company’s stock, for example, relies on a Securities Act exemption, is sold through a broker-dealer registered under the Exchange Act, and is subject to FINRA’s private placement and communications rules.

Membership and business approval

A firm that wants to act as an intermediary first needs FINRA membership. The membership application process asks the firm to describe its business lines, ownership, supervisory structure, financial resources and compliance procedures. FINRA reviews whether the firm can meet its obligations before it is approved.

Capital-raising is something firms must disclose and be approved to do. A member that later adds a new line of business, such as underwriting or private placements, or that changes ownership or control, generally must seek approval of the change from FINRA. These rules matter in practice because a firm that drifts into a new activity without approval can face a violation even if the activity itself is lawful.

Individuals matter as well. Registered representatives and principals must pass qualification examinations appropriate to their roles, and firms must supervise them. Investment banking staff, for instance, typically hold different registrations than retail brokers.

Corporate financing and underwriting terms

FINRA’s corporate financing rules are the core of its oversight of public and many private offerings. The central idea is that underwriting compensation and other terms must be fair and reasonable, and that FINRA should see them before the offering goes forward.

For many public offerings, the underwriter must file offering documents with FINRA, which reviews the arrangements for items that count as underwriting compensation: cash fees, expense reimbursements, warrants, rights of first refusal and similar benefits. The review looks at the total package rather than any single item. Certain offerings are exempt from filing, and the rulebook lists those categories.

Related rules deal with conflicts of interest. If a firm has a significant interest in the issuer, or is affiliated with it, the rules call for added disclosure and, in some cases, a qualified independent underwriter to price the deal. Such rules exist because a firm that benefits from both sides of a deal has an incentive to favor one of them.

Private placements

Private placements are offerings made without SEC registration, usually under Regulation D or Regulation S. Firms that sell them have their own set of obligations, and FINRA has written rules that speak directly to private offerings.

• Offerings by member firms or their affiliates. When a member sells securities that it or a control entity issued, FINRA’s private placement rule requires a private placement memorandum or equivalent disclosure with information about the use of proceeds and the offering costs, and it sets filing expectations. The aim is to give investors a clear picture when the seller is also the issuer.
• Filing requirements. A separate rule requires members to file private placement documents with FINRA after the offering begins, with exemptions for sales to certain institutional and accredited investors. Check the current rule text for the precise categories.
• Due diligence. Case law and FINRA guidance expect a firm to investigate an offering before recommending it. Reliance on the issuer’s statements alone has drawn enforcement attention in matters involving unregistered or fraudulent offerings.

The SEC’s pages on Regulation D and Regulation S cover the exemptions behind these offerings in more detail.

Communications and promotion

FINRA’s communications rules apply to anything a member says to investors about an offering. The standards are familiar: content must be fair and balanced, must not promise or predict returns in a misleading way, and must give a sound basis for evaluating the facts. Retail communications generally need review by a qualified principal and, for certain types, filing with FINRA.

Capital-raising has its own hazards here. Offering websites, social media posts, pitch decks and investor emails all count. Projections get special scrutiny, since forward-looking numbers that lack a reasonable basis can mislead. Firms that raise money for startups often rely on issuer-prepared materials, and the rules make clear that the member remains responsible for what it distributes.

Reg BI and suitability

When a broker-dealer recommends a securities transaction or an investment strategy to a retail customer, SEC Regulation Best Interest requires the firm to act in the customer’s best interest and not place its own interest ahead. Reg BI has four components: disclosure, care, conflict of interest and compliance obligations. Firms also deliver a short relationship summary, Form CRS, to retail investors.

Reg BI applies to recommendations, not to every sale. A placement agent dealing exclusively with institutional investors may fall outside it, while a firm that recommends a private offering to a retail client generally does not. FINRA’s own rules on know-your-customer, suitability for non-retail customers and supervision continue to apply, and FINRA examines for Reg BI compliance on the SEC’s behalf as part of its routine work.

Complex or illiquid products draw particular attention. Private placements, interests in blank-check vehicles and thinly traded securities often come up in examination findings because they are hard to value and hard to exit.

Supervision, records and compensation

Every member must maintain a supervisory system reasonably designed to achieve compliance with securities laws and FINRA rules, including written procedures. For capital-raising businesses, that usually means pre-approval of offerings, due diligence files, review of marketing materials and monitoring of any transaction-based compensation.

Compensation is a recurring theme. Transaction-based pay for finding investors is the defining feature of a broker-dealer, which is why unregistered finders who take success fees raise regulatory concerns. Registered firms must disclose compensation arrangements where rules require it, and must keep books and records that allow examiners to reconstruct a transaction. Information barriers separating investment banking from research and trading are a related requirement at larger firms.

Funding portals

Regulation Crowdfunding lets small companies raise money from the public through an intermediary that is either a broker-dealer or a funding portal. Funding portals are barred from some activities that broker-dealers perform, such as giving investment advice or soliciting purchases of the securities shown on their platforms, and they must register with the SEC and join FINRA. FINRA maintains a separate funding portal rule set that parallels the member rules in areas such as conduct, advertising and record-keeping.

Common misconceptions

“A finder is not a broker.” Labeling someone a finder does not change the analysis. Regulators look at what the person does and how they are paid.

“Private placements are unregulated.” The offering may skip SEC registration, but the antifraud rules, the broker-dealer rules and FINRA’s conduct and communications rules all still apply.

“FINRA approves offerings.” FINRA reviews certain terms and filings, but it does not endorse a deal or vouch for the issuer. Investors should not read a filing as a seal of approval.

“Reg BI only matters for stocks.” It covers recommendations of any securities transaction or strategy to retail customers, including private placements.

A worked example

Imagine a firm hired to place convertible notes with investors for a growth company. The firm first confirms that it is approved for private placement activity. It conducts due diligence on the issuer, reviews the offering memorandum for accuracy, and decides whether the offering is one for which a FINRA filing is needed. It limits sales to investors it has reason to believe qualify, checks that its marketing materials are balanced, and applies Reg BI where any investor is a retail customer receiving a recommendation. It keeps records of the process and discloses its fee. If it falls short on any one of those steps, it may face an examination finding even if the company’s business turns out fine.

How to keep current

FINRA changes its rules through proposals filed with the SEC. The details of each change, along with effective dates, appear in FINRA Regulatory Notices and in the rule filing pages of its website. Our guide on how FINRA rules are made explains the process. Always rely on the current text of the rulebook and the relevant SEC releases rather than summaries.

FAQ

Do all capital-raising firms have to join FINRA?

Firms that act as broker-dealers and deal with the public generally must be FINRA members. Narrow exceptions exist, such as firms that trade only on a national securities exchange of which they are a member.

Does FINRA review every private placement?

No. FINRA rules require certain filings and have exemptions for offerings sold only to specified categories of investors. Review of a filing is not an endorsement.

Where can I read the actual rules?

The FINRA Rulebook on finra.org is the authoritative source for FINRA rules, and Title 17 of the Code of Federal Regulations on eCFR contains the SEC rules.

Is a funding portal the same as a broker-dealer?

No. A funding portal is a distinct category created for Regulation Crowdfunding, with narrower permitted activities and its own FINRA rule set.

Can an unregistered person get paid for introducing investors?

Transaction-based compensation for introducing investors is a hallmark of broker activity and generally requires registration. Anyone considering such an arrangement should seek legal advice.