The Treasury Department's second report on regulatory reform, released Friday, zeros in on revisiting the "accredited investor" definition; re-examining the Jumpstart Our Business Startups Act (JOBS); evaluating regulatory overlaps between the Securities and Exchange Commission and the Commodity Futures Trading Commission (not merging the two); and improving self-regulatory organizations like the Financial Industry Regulatory Authority.
"The U.S. has experienced slow economic growth for far too long. In this report, we examined the capital markets system to identify regulations that are standing in the way of economic growth and capital formation," said Treasury Secretary Steven Mnuchin, in releasing the report, which focuses on the capital markets. "By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth, which will harness American ingenuity and allow small businesses to grow."
Treasury's first report on regulatory reform, released in June, also zeroed in on reducing overlap and duplication in federal regulation as well as reining in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Treasury's report also states that the federal financial regulatory framework and processes could be improved by:
- Incorporating more robust economic analysis and public input into the rulemaking process in order to make the rulemaking process more transparent;
- Opening up private markets to more investors through proposals to facilitate pooled investments in private or less liquid offerings, revisiting the "accredited investor" definition; and
- Limiting imposing new regulations through informal guidance, no-action letters or interpretation, instead of through notice and comment rulemaking.
The report, which highlights the need for more capital-raising methods, states that Treasury recommends allowing single-purpose crowdfunding vehicles advised by an RIA, which may mitigate issuers' concerns about vehicles having an unwieldy number of shareholders and tripping SEC registration thresholds (2,000 total shareholders, or over 500 unaccredited shareholders).
Since the SEC implemented its crowdfunding rules under Title III of the JOBS Act last May, 335 companies filed crowdfunding offerings with the SEC and there were 26 portals registered with FINRA for unaccredited investors, the report states.
"Of the filed crowdfunding offerings, 43% were funded, 30% of campaigns ended unsuccessfully, and the others are still ongoing. Total capital committed was in excess of $40 million. On average, each funded offering raised $282,000 and included participation from 312 investors," the report says.
Market participants have expressed concerns to Treasury, the report continues, about the cost and complexity of using crowdfunding compared to private placement offerings.
"Participants cited regulatory constraints, such as disclosure requirements and issuance costs, as well as structural factors, such as the challenges associated with having a large number of investors, as potentially limiting the use of this capital raising method," the report says.
