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What Does an Escrow Company Do?Title III requires that equity crowdfunding portals use a qualified third party ("escrow agent") to (1) hold investors’ money until a deal closes, or (2) return the money to investors if the deal is not fully funded. Funding portals are prohibited from handling funds or securities.Escrow agents may be any of the following three types:Banks,Credit unions, or,Qualified registered broker-dealers**Broker-dealers must be members of FINRA and carry customer or broker or dealer accounts and hold the funds or securities for such person.Maintenance and transmission of investor funds.Under applicable crowdfunding rules, escrow agents are required to "promptly deposit" the investor's funds in a separate bank account and either (i) hold the funds as trustee, or (ii) require the bank to hold the funds in escrow until the appropriate event or contingency has occurred. See Rule 15c2-4(b)(1). When the appropriate event or contingency has occurred, the escrow agent must "promptly transmit or return" to the person(s) entitled to such funds. See Rule 303(e)(1) [link inactive].How Much Should It Cost?It will vary depending on the platform. But here is a sample of published escrow fees:1. FundAmerica:Open Escrow: $225 (setup), $25/mo. bank account feeTransaction Fee: $10 per transaction <= $500, $35 > $5002. CrowdPay (Goldstar Bank):Open Escrow – $500. Accounts will terminate after 6 months.Escrow Renewal – $250Production API Keys – $1,500 (one-time fee)Issuer Background Check – $30 per business principalInvestor AML/CIP (Anti-Money Laundering) – $2 per investorEscrow Cancellation - Funds Returned to Investors - No additional fee.One-Time Disbursement of Funds to Issuer –Up to $1MM: 25 basis points (.25%) (less $500 Escrow Account Creation)$1MM - $5MM: 20 basis points (.20%) with a $2.5K minimum fee.> $5MM: 15 basis points (.15%) with a $10K minimum fee.Milestone-based Disbursement of Funds to Issuer - 30 basis points (.30%) per distribution with a minimum distribution fee.IRA Fees to Investors – $65 (flat) Annual Maintenance Fee + $25 One-Time Establishment Fee.Note: GoldStar IRAs set up through portals that utilize our APIs are NOT subject to the $25 One-Time Establishment Fee.Investor Funds Collection - No fee Via ACH; $25 Via Wire Transfer; $5 Via CheckInvestor Funds Withdrawal Request - No fee Via ACH; $25 Via Wire Transfer; $5 Via Check(Not Asked) Items that Escrow Requires from Crowdfunding Portal:Proof of Portal RegistrationPortal AgreementIRA Agreement (if applicable)(Not Asked) Items that Escrow Requires From Crowdfunding Issuer:Bad Actor Check (from Portal)Escrow ApplicationRequired Information For Escrow SetupEscrow Agreement and Joint Instructions (signed by Issuer and Portal)Resolution of Borrowing Authority (if debt/lending)Certificate of Incorporation (or similar)PPM/Offering Memorandum (or similar)IRA Agreement (if applicable)For a list of all escrow agents filed for Title III, click here:SEC Full Text Search

Credit risk modelling as per Basel Guidelines (FIRB and AIRB) is different from OR - Operational Risk Modeling because the methodological concepts, logic and applications have contrasting operating characteristics.Operational risk models generally require a Compound Poisson, Lognormal, Negative Binomial, Binomial, Weibull or any mixture distribution(for e.g. a bi-modal shaped distribution which represents both severity and frequency of internal and external loss data sample sets) to which data can be fitted, unlike most of the credit or market risk models. A Compound Distributions (Severity multiplied by Frequency) is used to compute EL, UL, VaR and other risk measures as per the earlier Basel II Pillar I Requirements.The use of truncated data sets/ sample observations for OR - Operational Risk Modeling was and remains a big problem at most of the banks. Usually, banks did not collect the data “In-House”, that was required by the regulators aka central banks, to measure and model operational risks, and also the reliance on external loss data (for a given loss event/risk type) consortium is not helpful, due to lack of risk awareness in the industry, lack of regulatory guidance, improper practices related to exploratory/observational data warehousing, classification and cleaning and high data aggregation & maintenance costs.Follow the URLs below to study some global developments that took place in the banking and insurance industry to assist the OR Expert/s=>ORX Loss Datahttps://www.boj.or.jp/en/announcements/release_2008/data/fsc0804a5.pdfhttp://www.sbp.org.pk/bsrvd/.../Hansruedi%20Schuetter%20-%20RiskBusiness%20(2).pdfAll in all most of the banks were not able to advance to the AMA -Advanced Measurement Approach Economic Capital Modeling Level(Pillar I -Basel II Accord), and those which were able to do so, got stuck due to reasons mentioned above, and in addition to that, the lack of availability of the human capital, that had the prerequisite quantitative and theoretical expertise to build and validate /cross-validated risk models, lack of timely investment in nurturing data repositories(building the essential data warehousing infrastructure and query relational database - retrieval methods) and lastly, lack of attention to detail to automate the capital adequacy computation modalities, with regard to OR - Operational risk factor/s exposure mapping.Now the revised approach has removed the AMA - (Advanced Measurement Approach) Methodology, to compute and report Operational Risk-based Capital Requirements in line with the Capital Accord Regulations.So, it would be a lot simpler for you to move from Wholesale Banking to OR Modeling Desk if you will be working only on ORM Specific Basel II / III Assignments!But, please note that OR desks/ units at a bank, might also be required to do many other things, and not just focus on Basel Compliance which includes = > [economic capital modelling] and [stress testing].Operational Risk is a very vast field, which includes, (but not limited to the following) =>GRC - Governance, Risk and Compliance Architecture Design,ERM -Enterprise risk management taxonomies,SOX Compliance and reporting of financial entries,Firm-wide Internal Control Design and Testing,Internal Audit(they function as part of OR - Operational Risk Management Unit at some banks),Business Strategy Analysis,Firmwide Risk Financing and Insurance,Credit Risk Underwriting related Operational Risks,Document Legal Vetting and Risk Analysis,Treasury Deal Processing and Electronic Transfer Payment Authorization Controls executed via the Middle and Back Office,Whistleblowing and Employee Ethics Policy Implementation,Fraud Risk Management,FCC - Financial Crimes Compliance,AML /KYC/ CTF/ CIP Oversight,Business Change Management Processes,Systemic Risk and Operational Crisis Management,Validation of Risk-Adjusted Pricing Models,Implementation of the IFRS9 - International Accounting StandardAdditionally =>If you are working at a Shariah Compliant Financial Company/ bank, there might be many more areas of Operational Risks such as Product Transaction risk management and Shariah Non-Compliance Risk Management, which is pertinent to the Shariah guidelines and overall Islamic Injunctions, as overseen and approved by the SAC - Shariah Advisory Council / Board in the context of ethical banking operations, policies, standards and procedures.Where will you be working is best known to you!Good luck!

https://www.linkedin.com/pulse/fintech-tip-investors-guide-understanding-anatomy-portal-chavarria​​Amilcar ChavarriaFinTech EntrepreneurFinTech Tip: Investors Guide To Understanding The Anatomy Of A Crowdfunding Portal. Part 1September 16, 2015 • 366 Views • 21 Likes • 3 CommentsBody PartsCrowdfunding Portal Operator: the intermediary between two parties, the capital rich (investor) and the capital hungry (entrepreneur). These two parties can become co-owners of the same business via equity (as stockholders) or debt investments (holders of claims against assets of a businesses) when connected.Investors: folks with capital to invest in high tech startups, real estate, clean tech or any other type of business available via a crowdfunding portal. Although, peer-to-peer (P2P) lending is many individuals (the crowd) backing a single borrower, to the layman investor, it’s all crowdfunding. However, the industry terms commonly used are alternative lending, P2P or P2P lending.Issuers: the entrepreneur or borrower that seeks a capital infusion in order to grow his / her business or implement a project (e.g. Real Estate) or business venture (e.g. high tech startup). They are called issuers because they’re in fact issuing securities to the public.Life Support & Organs = Partners + Vendors3rd Party Escrows are necessary for portals to avoid custody of funds raised and your protection as an investor. Typical escrow agents include Banks, Trusts Companies as non-depository financial institutions and lawyers involved in real estate closings through an agent. Make sure your read the terms and conditions from your portal, legal section or FAQs to understand custody of funds. If you care about legalese, look up SEC 15c2-4 rule.Broker Dealers: most broker dealers do not self clear or carry customer accounts. Carrying customer accounts and clearing customer trades requires a large amount of infrastructure and capital to provide these services. The introducing broker dealer will send all cash and securities to the clearing broker dealer. The clearing broker dealer will maintain all of the customer accounts, clear all trades and in most cases send the customers confirmations and statements (source). Not all crowdfunding transactions require a broker dealer to be involved. See this great post by finlawyer.com. Also, see the supplement at the end of the article for key differentiators around various broker dealer types.Legal Services to ensure compliance with laws but other tasks like creating a Private Placement Memorandum (PPM) and adherence with securities laws as a firm leverages crowdfunding exemptions (Reg D 506c), Reg A+ (Title IV of the JOBS Act) or otherwise intrastate crowdfunding exemptions (live in 21 states already) that enable ANYONE TO INVEST IN JUST ABOUT ANYTHING.Audit Services to ensure a financial audit is performed where necessary (e.g. Reg A+ offerings) and compliance with financial reporting (akin to publicly traded companies).Investor VerificationIdentity Verification Service to comply with Know Your Client (KYC) or Customer Identification Program (CIP) in the payments worldAnti-Money Laundering (AML) Service to comply with US Patriot Act & Anti-Money Laundering LawsAccreditation Service to comply with SEC Rules for Reg D 506 c deals for example, which are limited to accredited investors only ($200K income for singles (300K if married) or NW of $1MM+). This applies to most real estate crowdfunding portals.Due Diligence to run issuer background checks (e.g. bad actor), verify the professional backgrounds of the entrepreneurs involved, legitimacy of the issuing entity, etc. CrowdCheck is the leader in this space.Stock Transfer Agent which, where possible (e.g. Reg A+), in dealing with non-restricted securities, can be used to issue, hold and transfer stock certificates. More in the supplement.E-Signature a software vendor that enables the collection of e-signatures on the fly. These are just as good as wet ink in most cases.Payment Processing to handle money transfers (ACH or Wire) from investors into a fundraising deal (via 3rd party escrow) and to handle repayments (e.g. dividends, rental income, royalties, interest and principal) back from issuers to investors.Portal Builder: these are web development shops that typically design and build a crowdfunding portal as a white label solution (branded as yours) for firms that have money but do not have engineering resources.Energy Sources ~ Sources of Revenue & Enterprise Value (And Motives)Crowdfunding portals derive their value from the number of investors, entrepreneurs listing deals, transactions and in some cases, the returns they generate for the same investors. Their sources of revenue, on which their livelihood depends, are the main drivers of enterprise value (and motivations in most cases). As an investor, you'd want to align your interests as much as possible and just like dealing with a Real Estate Broker or Financial Advisor, eliminate or mitigate conflicts as much as possible. Look for a disclosure, disclosure, disclosure rule from sound industry players and ehm, plain english please. Here's how we all get paid:Number of accredited investors: this is particularly true for portals operating under Reg D 506c (Title II of the JOBS Act). An unconfirmed number is that Realty Mogul had 7,000 accredited investors when they raised $7MM in funding a while back. They've since raised a lot more. They are a great firm and I like what they do. Just highlighting a multiplier.Number of eyeballs, subscriptions and investors (accredited or otherwise): for portals merely connecting two parties and letting them transact on their own, the number of investors willing to transact is the main source of enterprise value. A secondary source of revenue is a listing monthly fee to the entrepreneurs raising capital. Key issue to note here is that because the portal is neither a fiduciary (as in they don't really need to protect you) or registered intermediary working through a broker dealer for example, they can list anyone (verified or otherwise bad actor) on their portal. For $200 per month that they charge the entrepreneur as a match making service, they can't possibly cover and nor do they advertise, investor protection as a differentiator. You have to do your own homework (due diligence + investment evaluation) and be extra careful when working with listing services. Look for due diligence as much as possible. It's money, not water.Transaction | Success Fees: every time a new company gets funded on certain portals, the operator of that portal can earn, on average 5% of the deal for introducing the two parties and all the work involved in onboarding investors and associated fees with raising capital.Financial Returns: some portals have operating and revenue models that behave like a venture capital fund (see below). In this case, a portal operator gets paid based on the performance of the underlying companies in which it invests (their portfolio). Meaning, if the companies go up in value, they can profit share with you. Angel List's Syndicate model is an example here and another great firm.Administrative, Management and Placement Fees: these are operating and miscellaneous charges that can be applied by a fund manager (think mutual fund but for privately held securities as the stock equivalents). So there could be a management fee of 1% times the total assets within a fund. A placement fee could be associated with new capital being 'subscribed' or 'placed' into a fund and can cover, among other costs, paperwork and due diligence.Origination, Servicing Fees: when a portal helps a project sponsor raise capital through debt instruments, there are origination fees to be had. In many portals, this fee is 2% on average.Vital Systems – What to look for in a healthy portal?Regulatory Compliance – portals acting as intermediaries need to comply with securities laws as otherwise, they can easily get shut down by regulators. As an example, a Reg D 506(b) deal only permits 35 non-accredited investors whereas a Reg D 506(c) is meant for accredited investors only. Learn more here in this 101 guide to Crowdfunding, Crowdlending et al. Read the footer from each portal to find out how they are regulated and parties involved.Due Diligence -- What to look forInvestment Process Due Diligence: if you are getting judged by your returns, you better make sure you do your homework (just like any other investor) to present your clients (investors showing up to a portal) with unique + vetted investment opportunities. Most portals publish a 'deal curation' or 'investment process' in selecting companies listed. Otherwise, as an investor do not assume they endorse or have vetted these companies. Please ask.Investor Protection: by law, anyone who’s considered a Bad Actor, is not allowed to issue new securities. Similarly, a crowdfunding portal operator needs to ensure that the issuers it presents to investors have been verified in terms of professional backgrounds and that their respective businesses are in good standing (e.g. incorporated). A simple litmus test is to verify principals against their securities record. If they've ever been licensed, their public records (good and bad) will be here: http://brokercheck.finra.org/. Also, you can google issuers based on the state of incorporation to do a background check on your own. Linkedin is another great tool.Marketing – without solving the distribution problem to get more investors to show up and transact on or offline, crowdfunding portals remain no more than simple websites with pretty thumbnails. You can go to a site like alexa or google web traffic estimator to see if their transaction claims are accurate (given traffic volume). You can verify funding claims directly from previous issuers and investors as well. Referrals are your friends here. Again, it's money not water.Venture Capital (VC) Primer -- Understand Carry, Management FeesThink of a Venture Capitalist Fund as a money manager’s pool of assets that on behalf of larger financial institutions known as Limited Partners (e.g. Teachers Retirement Fund), seeks investments in private equity (e.g. early-stage non-publicly traded companies). The venture capitalist (General Partner of the fund), derives part of his/her compensation from the management of the portfolio and returns generated by the growth of that portfolio of companies in the fund.Ways of Living – Typical Business ModelsEquityOnline VC Model, a special purpose vehicle (aka fund) is created and funded by the crowd and/or institutions. The fund manager or general partner, in turn, deploys capital to its portfolio companies. The payoff occurs when a portfolio company realizes an exit (gets acquired thus generating liquidity for its investors). There are other fees associated with this type of set up. Look at FAQs. Here are two samples: Sample 1 & Sample 2 (cheaper / better in my humble opinion). Also, a company can go bust and the value of the fund assets depreciates.Syndicate Model, an individual (syndicate lead and typically a serial angel investor) sources new investment opportunities and gets paid “carry” or share of profits when a company exits. A syndicate allows investors to participate in a lead investor's deals. In exchange, investors pay the lead carry. Learnall about syndicates here.Here's an example: Sara, a notable angel investor, decides to lead a syndicate. The syndicate investors agree to invest $200K total in each of her future deals and pay her 15% carry. They usually also pay the platform ~ 5% carry. There's carry at the deal and fund level or both.Broker (Most Crowdfunding Portals) connects two parties, the investor and issuer and gets paid a ‘success fee’ when the fundraising is complete (say 5% but I've seen as high as 7.5%). Similarly, in debt, if you connect a borrowing entity such as a real estate developer with a set of investors (the crowd) so s/he can borrow funds to purchase land or a building to be repurposed, the portal gets paid a fee of roughly 2%.Listing service. May be free for investors to join and a flat fee per month to the listing startup. All transactions, due diligence and compliance is then moved away from the portal. This carries risks for the investor that are lessened in the above scenarios.Debt | Real Estate (which can raise debt or equity)P2P Fees: Service Fees which usually collected when investors get paid back (e.g. interest). For Lending Club, this is 1% of the amount of payments received. Sample Pricing. Collection fees occur when loans default and best practices need to be used to bring the loans back to current. These fees can be quite high. For ex, "The normal collection fee is a percentage of the amount recovered: 30% if the loan is less than 60 days past due". On the borrower side they can also charge an origination fee (1 - 5%) plus APR and other fees (e.g. late). To be clear, these are all warranted on a premise of risk vs. return and the cost of capital that lending club has. I am merely highlighting the sources of revenue so that an intelligent investor, you, can plug these into a spreadsheet and know what to look for. The data is out there for everyone to learn.Real Estate Example: Real Estate Portal can charge investors 0.3% to 0.5% of invested capital annually to service and asset manage the investments. They could also take a spread between the income from the asset (e.g. building) and the payment on the corresponding loan. (like a servicing fee). In addition most real estate portals charge real estate companies a one-time 1% to 2% origination fee and closing costs. There are also models that charge management fee plus carry on the real estate assets.Lending Facility (~ VC Model), a portal can raise money to create a fund that lends across various opportunities. The fund charges interest and operating expenses to investors. An example in pricing here would be to charge the borrower appraisal, closing costs, origination points, and monthly interest if they are lending PLUS a servicing fee (2% on the investor side).Suggest a FinTech topic? I'd like to hear from you, write me a note at [email protected] Dealer & Industry Lingo SupplementsClearing Broker-Dealer, per FINRA, shall mean the member firm that has been identified as principal for clearing and settling a trade, whether for its own account or for a correspondent firm. A correspondent broker dealer also known as an introducing broker dealer executes orders for customers and for its own account and sends all of the information to the clearing broker dealer. The clearing broker dealer carries all customer and firm assets and sends out customer confirmations and statements.Per Finra, Introducing Broker-Dealer" shall mean the member firm that has been identified as a party to the transaction, but does not execute or clear trades. It introduces customer accounts to a clearing broker dealer.Transfer Agents: For the new Reg A+ deals, this can be of interest since those securities will be transferable whereas in most equity crowdfunding deals, the securities are non-transferrable. Transfer agents record changes of ownership, maintain the issuer's security holder records, cancel and issue certificates, and distribute dividends. Because transfer agents stand between issuing companies and security holders, efficient transfer agent operations are critical to the successful completion of secondary trades. Section 17A(c) of the 1934 Actrequires that transfer agents be registered with the SEC, or if the transfer agent is a bank, with a bank regulatory agency.SEC sourceWritten by​Amilcar ChavarriaFinTech EntrepreneurLikeShare on LinkedInShare on FacebookShare on Twitter21 likes3 comments​Add your comment​Nandini Nag 1stSenior Manager, Global Strategy at Ciscointeresting perspectiveLikeReply6 months ago​Oleh Zaiats 1stFounder at Fintech Info │ fintech analyst and educatorcreatively!LikeReply6 months agoShow More