How Broker-Dealers Can Facilitate Compliant Alternative Investment Offerings
The private capital markets have experienced unprecedented growth, driven largely by regulatory changes introduced through the JOBS Act. Over the last five years, more than $150 billion has been raised through these exemptions, with FINRA-registered broker-dealers playing a crucial role in ensuring compliance, investor protection, and deal execution.
As the alternative investment (Alts) space continues to expand, broker-dealers need to embrace technology to remain competitive and efficient. The big question is, how broker-dealers can facilitate compliant alternative investment offerings by leveraging advanced infrastructure, automation, and compliance-driven technology solutions.
The Role of Broker-Dealers in Alternative Investments
Broker-dealers serve as intermediaries in private securities transactions, ensuring that issuers and investors comply with U.S. securities laws that are issued by the SEC. Their responsibilities include:
- Due Diligence and Compliance – Broker-dealers perform due diligence on issuers, verifying financials, bad actor, business models, and compliance with SEC regulations. Investor protection is paramount, and broker-dealers must ensure that all marketing materials and disclosures are accurate.
- Investor Verification – They conduct Know Your Customer (KYC), Anti-Money Laundering (AML), and suitability assessments, ensuring investors meet the necessary accreditation standards.
- Transaction Execution – Broker-dealers facilitate investment transactions, ensuring that funds are securely transferred and recorded in compliance with securities laws.
- Regulatory Filings – They assist issuers with SEC and FINRA filings, ensuring proper disclosure and reporting under Regulation CF, Regulation A+, and Regulation D.
Regulatory Growth and the JOBS Act’s Impact
The JOBS Act revolutionized private capital markets by introducing exemptions that allowed companies to raise funds from accredited and non-accredited investors. Regulations such as RegA+, RegCF, and RegD 506(c) have facilitated new opportunities for capital formation.
- RegA+ enables issuers to raise up to $75 million per year from both accredited and non-accredited investors, but requires compliance with SEC qualification procedures.
- RegCF allows startups and early-stage companies to raise capital directly from retail investors. The recent increase in offering limits to $5 million has expanded its utility for private issuers.
- RegD (506c) provides companies with the ability to raise unlimited capital, but requires investor verification to ensure only accredited investors participate.
Technology’s Role in Broker-Dealer Efficiency
The explosive growth of alternative investments has increased regulatory scrutiny, making compliance more complex for broker-dealers. The adoption of technology is critical for firms to streamline operations and ensure compliance in an evolving landscape.
1. Compliance Automation and Investor Verification
The complexity of compliance, particularly for Reg A+ and Reg CF offerings, has made manual verification impractical. Advanced compliance platforms integrate KYC, AML, and accreditation verification seamlessly, reducing administrative burdens on broker-dealers.
2. Digital Securities and Tokenization
The shift toward digital securities (tokenized assets) is transforming private capital markets. Blockchain technology allows for increased transparency, immutable record-keeping, and secondary market liquidity. Broker-dealers looking to engage in digital securities offerings must obtain FINRA approval and meet SEC reporting obligations.
3. Streamlined Investment Platforms
Investors expect a seamless online experience when making alternative investments. Integrated investment platforms provide:
- Automated subscription agreements
- Digital signature workflows
- Real-time investor status tracking
- Cap table and compliance management
By leveraging such platforms, broker-dealers can reduce friction and enhance investor confidence.
4. Secondary Market Trading via ATS
With the rise of Alternative Trading Systems (ATS), broker-dealers can now facilitate secondary market transactions for private securities. ATS platforms provide investors with liquidity while maintaining regulatory compliance.
Navigating Compliance Challenges
Despite the efficiency gains provided by technology, broker-dealers must remain vigilant about regulatory changes. Key challenges include:
1. SEC and FINRA Scrutiny
Regulators closely monitor compliance with Reg A+, Reg CF, and Reg D. Firms that fail to properly verify investors or follow disclosure requirements risk SEC penalties.
2. Broker-Dealer Registration for Digital Securities
Not all broker-dealers are approved to handle digital securities transactions. Firms must undergo a rigorous FINRA registration process before engaging in digital asset offerings.
3. Record-Keeping and Audit Requirements
The SEC mandates that broker-dealers retain transaction records in WORM-compliant formats (Write Once, Read Many) or maintain an audit-trail alternative to ensure data integrity to meet Rule 17a-4.
The Kore Infrastructure and Ecosystem
At Kore, we provide a comprehensive infrastructure designed to help broker-dealers navigate the complexities of alternative investments efficiently and compliantly. Our platform includes:
- End-to-End Compliance Automation – KYC, AML, accreditation, ongoing investor verification, and all attestations.
- Fully Integrated Investment Platforms – White-label solutions for seamless investor transactions.
- Digital Securities Support – Blockchain-powered solutions for issuance and secondary trading that are 100% compliant and qualified by the SEC.
- Regulatory-Grade Record-Keeping – Ensuring full compliance with FINRA and SEC requirements.
By leveraging Kore’s infrastructure, broker-dealers can enhance efficiency, reduce risk, and scale their alternative investment offerings seamlessly.
The Future of Alternative Investments
The alternative investment market is on track for continued growth, driven by regulatory advancements and technological innovation. Broker-dealers that embrace compliance-driven technology will be best positioned to capitalize on these opportunities while maintaining regulatory integrity.
Now is the time for FINRA Broker-Dealers, ATS operators, and compliance professionals to modernize their operations and leverage Kore’s industry-leading infrastructure.
Schedule a Meeting with Kore
If you’re a broker-dealer looking to streamline compliance and enhance efficiency in alternative investments, schedule a meeting with our KoreTeam today.
