May 18, 2020

Temporary Relief from Crowdfunding Rules

Americas
Policy/Program
Description of the core change(s) brought by this policy instrument

The Securities and Exchange Commission (SEC) is providing temporary, conditional relief to established small businesses impacted by COVID-19 in order to expedite the offering process.

In particular, the SEC is relaxing certain Regulation Crowdfunding’s rules with respect to:

a) The timing of an offering:

Sales are permitted as soon as the issuer has received binding commitments for the total offering amount, rather than requiring the offering to be publically available for at least 21 days.

In addition, early closings of the offering are permitted under certain additional conditions.

b) The financial statements required

For issuers offering between $107,000 and not more than $250,000 in a 12-month period, the requirement that financial statements be reviewed by an independent public accountant has been waived and replaced by a certification from the issuer’s principal executive officer.

Easing requirements for accountant-reviewed financial statements may also lower the cost of an offering, which is especially useful as small businesses seek to conserve cash during the COVID-19 crisis.

These changes are designed to enable issuers and potential issuers that meet the eligibility criteria to access capital via crowdfunding much more quickly than would otherwise be the case.

Please list the implementing agencies

Securities and Exchange Commission (SEC).

Please name the policy advisor(s) or leader(s) who have been key in introducing and/or designing this policy instrument

Jennifer Zepralka, Office of Small Business Policy, Division of Corporation Finance, U.S. Securities and Exchange

Lifecycle of target firms for this policy instrument
Existing SMEs
Start-up firms
If you marked "start-up" and/or "scale-up" firms, please provide the specific definitions used

To benefit from the SEC’s temporary rule changes, a small business must meet enhanced eligibility requirements and make a clear disclosure about its reliance on the temporary rules to investors.

To be eligible for the temporary relief, issuers must meet all of Regulation Crowdfunding’s existing requirements for participation. They must also (1) have been operating for at least six months prior to beginning the offering, and (2) have complied with the requirements of section 4A(b) of the Securities Act, if the issuer has previously sold securities under Regulation Crowdfunding.

Support offered
Indirect Financial Support
Level of intervention
Firm-level
Barrier(s) addressed with this policy tool
Access to Capital
Regulatory
Policy timeline

Effective date: The amendments are effective from May 4, 2020, through March 1, 2021.

Applicability date: The amendments apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020, and August 31, 2020.

Stated goal/metrics of the policy instrument

To speed up and reduce the barriers to an offering under Regulation Crowdfunding.

Challenges, criticisms and lessons

From the perspective of potential investor: While the SEC is requiring issuers to prominently advertise their use of the relaxed regulations, they will be investing with less detail than they would otherwise be required to have. Offerings might also close more quickly, locking in commitments in less time than would otherwise be the case.

Notes and additional context

According to expert attorneys, this temporary rule by the SEC fits within a broader trend of recent attention with respect to Regulation Crowdfunding. In March 2020, the SEC proposed a range of changes to Regulation Crowdfunding in its largest revision since its initial enactment. The SEC has proposed raising the offering limit from $1.07 million to $5 million, as well as amending the investment limits to remove them entirely for accredited investors and to permit non-accredited investors to invest the greater of their annual income or net worth. These changes suggest a desire by the SEC to make offerings under Regulation Crowdfunding more available and on simpler terms than had been the case under the preexisting regulatory scheme.

Geographic scope
National-level