/>iThe U.S. Securities and Exchange Commission (SEC) is once again considering a proposal that could exempt certain individuals—known as “finders”—from broker registration requirements when helping small businesses raise capital. The renewed focus, highlighted in the SEC’s Small Business Capital Formation Advisory Committee agenda for July 22, 2025, has reignited discussions that have been ongoing since the initial proposal was introduced in 2020.
What Is the “Finder” Exemption?
Traditionally, individuals who introduce companies to potential investors for a fee must register as a broker with the SEC, facing significant regulatory scrutiny. The 2020 proposal aimed to exempt a narrow category of “finders” from this requirement, with the goal of making it easier for small businesses to raise early-stage capital. Supporters saw this as a way to clarify a confusing area of regulation and to help entrepreneurs secure funding more efficiently.
The Debate: Supporting Small Business vs. Investor Protection
In Favor
Republican commissioners backing the proposal think this exemption would benefit small businesses that lack established investor networks or resources. They argue that allowing certain individuals to make investor introductions—without full broker registration—could help startups access the funds they need to grow. SEC Chair Paul Atkins has stressed the importance of creating practical ways for entrepreneurs to secure investment, supporting broader goals of fostering innovation.
Opposition
Democratic commissioners such as Caroline Crenshaw, along with several major industry groups, have expressed concerns about weakening investor protections:
- SIFMA (Securities Industry and Financial Markets Association) is concerned the exemption could undermine market integrity and thinks a more rigorous process is needed.
- FINRA (Financial Industry Regulatory Authority) warned that such a change could hurt public trust in the securities markets, and suggested reviewing its own rules to address barriers.
- PIABA (Public Investors Advocate Bar Association) argued the exemption could create a significant loophole, allowing individuals to conduct broker activities without enough oversight.
The Path Forward—What’s Next?
It is not yet clear if the SEC—currently led by a Republican majority—will move forward with a revised “finder” exemption or what the details might look like. The July 22 committee meeting will gather additional input from a range of market participants and explore ways to balance access to capital with investor protections.
Key Considerations for Lawyers and Stakeholders
- Ongoing Regulatory Uncertainty: The rules distinguishing “finders” from “brokers” remain unclear, and any changes could affect how small businesses and those helping them raise funds operate.
- Maintaining Investor Protection: Any updates will need to strike a careful balance between efficient fundraising and safeguarding against fraud.
- Industry Feedback Is Critical: With over 100 comments received in 2020 and more expected, the perspectives of both industry groups and investor advocates will be crucial in shaping any future rules.
Conclusion
The SEC’s renewed attention to the “finder” exemption highlights how important this topic remains for a wide range of market participants. As developments continue, it will be important for business owners, investors, and their advisors to stay informed on new legal requirements and opportunities.
