Monark Partner Compliance Guide

Last Updated: 01/12/2025

Monark Markets and its affiliates (“Monark”) operate within one of the most highly regulated areas of the investment industry: the private markets. This landscape is governed by the Securities Act of 1933, SEC Regulations D and S, FINRA’s supervisory and books-and-records requirements, and Anti-Money Laundering obligations under the Bank Secrecy Act and the USA PATRIOT Act. Because Monark facilitates the distribution of private-market assets—whether directly, through its affiliated broker-dealer acting as a placement agent, or through partner firms serving as sub-placement agents or foreign intermediaries—both Monark and its partners must comply with a complex, continually evolving regulatory framework.

This guide outlines that framework in clear, accessible terms. It describes the controls Monark implements to ensure alignment with applicable SEC and FINRA standards, as well as the broader rules governing private-market activities.

Regulatory Authority and Partner Eligibility

Private securities and certain registered funds can be distributed only through entities authorized by the appropriate regulatory authority. U.S. broker-dealers must be registered with FINRA under the Securities Exchange Act of 1934 and must maintain the permissions necessary to supervise private placements under FINRA Rule 3110. They must also maintain the ability to provide required customer disclosures under Regulation Best Interest and Form CRS, and they should have either a fully disclosed or omnibus clearing relationship with a registered clearing firm, consistent with Exchange Act Rule 15c3-3.

Foreign broker-dealers participating under Regulation S must be appropriately licensed in their home jurisdiction and must not engage in “directed selling efforts” toward the United States, as defined in SEC Regulation S, Rule 902(c). Monark verifies foreign licensing, AML controls, and the ability of foreign partners to offer private placements in compliance with their local law and Rule 903(b). These requirements establish that any entity distributing private securities through Monark operates entirely within both U.S. and local regulatory frameworks. 

KYC, AML, CIP, and Sanctions Compliance

Every investor participating in an offer distributed through Monark must undergo full KYC and AML review in accordance with the Bank Secrecy Act, FINRA Rule 3310, the USA PATRIOT Act’s Customer Identification Program requirements (31 C.F.R. §1023.220), and OFAC sanctions laws. Because investors should not undergo unnecessary onboarding, Monark may rely on a partner broker-dealer’s AML program, provided the program is first reviewed and approved. Where reliance is used, Monark and MMM Securities enter into a reliance agreement, and MMM Securities performs periodic testing to satisfy its obligations under FINRA Rule 3310.

When reliance is not possible, Monark and the partner jointly determine how to capture KYC/AML information while meeting all CIP, beneficial ownership, and sanctions-screening requirements. For foreign investors, enhanced due diligence is usually required. This includes verification of non-U.S. residency, review of sanctions exposure, and confirmation of source of funds. These processes ensure consistent compliance across all investors without creating duplicative friction. 

Accreditation, Suitability, and SEC Regulation D Requirements

Most U.S. offerings facilitated through Monark fall under Regulation D, Rule 506(b), which is governed by 17 C.F.R. §230.506. Because Rule 506(b) prohibits general solicitation, partners may only communicate opportunities to investors with whom they have a pre-existing, substantive relationship. Monark enforces this requirement by limiting access to private placements until investors complete the accreditation attestation workflow.

Under SEC Rule 501(a), investors must meet the definition of an accredited investor. Monark provides a digital accreditation attestation workflow via API that partners can integrate directly into their user interfaces. Partners remain responsible for establishing a reasonable belief that their customer is accredited, consistent with the interpretive guidance surrounding Rule 506(b).

Suitability must also be addressed in accordance with FINRA Rule 2111. Monark supports partners by enabling custom suitability questions—often including financial background, risk tolerance, liquidity, and concentration levels—to assist broker-dealers in meeting their “reasonable basis” and “customer-specific suitability” obligations. 

Foreign Distribution and SEC Regulation S Requirements

Offerings distributed under Regulation S must comply with SEC Rules 901 through 905. These rules require that the transaction occur outside the United States, involve only non-U.S. persons, and avoid directed selling efforts into the United States. Monark enforces these standards by ensuring that partners verify investors’ non-U.S. status and by delivering the required Regulation S representation letter attesting to the purchaser’s foreign status, their agreement not to resell securities into the United States during the applicable distribution-compliance period, and their prohibition on hedging transactions, as required under Rule 903(b)(3)(iii).

Because Regulation S offerings avoid U.S. accreditation rules, they often require enhanced due diligence to confirm foreign status and compliance with local securities regulations. Monark performs this review as part of its onboarding and maintains ongoing monitoring to ensure continued adherence to Rule 905. 

Offering Documents, Disclosures, and Required Investor Acknowledgments

Every private offering must be accompanied by a complete set of offering documents, including the Private Placement Memorandum, the operating agreement, the subscription agreement, and the full risk disclosures associated with the investment. These documents are required under the anti-fraud provisions of the Securities Act, including Section 17(a), and must be delivered to the investor in a manner compliant with FINRA Rule 2210 on communications with the public.

Monark provides these documents directly through API integrations so investors may view them within partner platforms. Before entering into a subscription agreement, investors must explicitly attest that they have reviewed each document and understand the risks associated with illiquidity, resale restrictions, and the speculative nature of private offerings. Monark captures and stores all attestations and executed documents in a manner that satisfies FINRA Rule 4511 and SEC Rule 17a-4, which govern the retention and accessibility of books and records. 

Placement Agreements and Defined Roles

Before distribution can begin, Monark (through MMM Securities) and the partner must execute a placement agreement defining the responsibilities of both parties. This agreement provides clarity around economic arrangements, supervisory duties, marketing restrictions, and recordkeeping obligations. Private placements cannot be distributed until this agreement is fully executed and reviewed for compliance with FINRA Rule 2040 and other compensation-related rules. 

Issuer and Asset Diligence, Share Verification, and Risk Controls

Monark conducts thorough due diligence on issuers and SPV sponsors, evaluating operational capabilities, regulatory history, conflicts of interest, and internal control environments. This process is essential for meeting FINRA Rule 3110 supervisory expectations around private placement review.

For pre-IPO shares and similar assets, the underlying proof of ownership must be verified. When shares are acquired directly from the issuing company, Monark validates the share certificate and ensures the SPV is properly recorded on the company’s cap table upon closing. When shares originate from an upstream SPV, Monark reviews the chain of custody, examines the original share certificate and supporting documentation, and confirms that the upstream SPV’s ownership was legitimate. These steps align with the antifraud provisions of the Securities Act and with the expectations outlined in FINRA Regulatory Notice 10-22, which governs diligence in private placements. 

Deal Files, Internal Review, and Supervisory Documentation

Every offer receives a full deal file containing diligence materials, compliance review notes, issuer materials, and transaction details. Monark shares this file with distribution partners so their supervisory teams can meet their responsibilities under FINRA Rule 3110. Internally, Monark completes a documented diligence review, signed by a supervising principal, which ensures a structured supervisory path, a clear audit trail, and alignment with FINRA’s expectations for private placement supervision. All files are stored in compliance with SEC Rule 17a-4’s retention, indexing, and accessibility requirements and are made available for download by Monark’s partners.

Private Funds and Registered Funds

Private funds and registered funds occupy very different regulatory environments under U.S. securities law, and each requires a distinct set of supervisory, disclosure, and operational controls. Because the Monark platform enables partners to distribute both types of products, this section explains how each category is treated under the Securities Act of 1933, the Investment Company Act of 1940, and the FINRA rules that govern marketing, supervision, and investor protection. These distinctions are critical for ensuring that every offering distributed through Monark aligns with its corresponding regulatory regime.

Private funds—typically structured as 3(c)(1) or 3(c)(7) vehicles under the Investment Company Act—are exempt from the registration requirements imposed on public funds. These exemptions permit private funds to avoid registration with the SEC, provided they limit participation to accredited investors or qualified purchasers and do not engage in any public offering. For this reason, all private fund offerings facilitated by Monark must comply with the private placement exemptions under Regulation D of the Securities Act. In a Rule 506(b) context, no general solicitation is permitted, and the broker-dealer must maintain a pre-existing relationship with the investor in accordance with 17 C.F.R. §230.506(b). The investors themselves must meet the accreditation standards outlined in Rule 501(a), and the sponsoring issuer must provide adequate disclosure under the anti-fraud provisions of the federal securities laws. Monark supports these obligations through digital subscription processes and audit-ready recordkeeping that aligns with FINRA Rule 4511 and SEC Rule 17a-4.

Monark conducts its own diligence and provides partners with the complete deal file needed to satisfy supervisory review requirements. Because private funds often involve illiquid assets, complex fee structures, and non-standard valuation methodologies, partners must take care to assess suitability for each investor under FINRA Rule 2111. Monark assists by providing suitability prompts, risk acknowledgments, private placement memoranda, and the digital delivery of all offering documents, which allow advisors and broker-dealers to meet their obligations under FINRA Rule 2210 regarding fair and balanced communications.

Registered funds, by contrast, operate under an entirely separate regulatory scheme. These funds are subject to full registration and ongoing reporting requirements under the Investment Company Act of 1940 and must distribute a prospectus meeting the disclosure standards of the Securities Act. Examples include registered interval funds, closed-end funds, tender-offer funds, and other publicly offered regulated vehicles. Because these products are considered public offerings, they may be marketed more broadly. Still, the partner remains subject to FINRA Rule 2210, which requires that all communications be fair, balanced, and not misleading. Unlike private funds, registered funds must adhere to strict rules on valuation, custody, leverage, affiliated transactions, and periodic reporting, which gives investors a different level of transparency and protection.

Whether distributing private funds or registered funds, partners remain responsible for their own supervisory procedures, suitability reviews, and communications oversight. Monark supports these responsibilities by delivering standardized offering documents, facilitating digital subscriptions, synchronizing data with fund administrators and transfer agents, maintaining required books and records, and ensuring the accurate transmission of valuations and other reporting data. In both cases, Monark’s role is to provide a compliant, unified distribution infrastructure while enabling partners to meet the regulatory obligations imposed by federal securities laws, FINRA rules, and the broader supervisory expectations that govern private-market and public-fund distribution.

Funding Flows, Bank Controls, and AML Requirements

Investor funds may be transmitted directly to the SPV’s bank account through wire or ACH, or, when permitted by the partner’s clearing relationship, restricted within the investor’s brokerage account until the offering closes. Upon allocation, the partner or clearing firm transfers funds to the SPV or designated house account for settlement. All fund movements must comply with the Bank Secrecy Act, OFAC regulations, and applicable AML monitoring requirements. Monark provides instructions, reconciliation controls, and settlement support to ensure proper alignment with AML and financial-crimes compliance. 

Custody Structures and Beneficial Ownership Requirements

Private securities can be custodied either under issuer self-custody, fund admin, or through a qualified clearing firm. Under issuer self-custody, the issuer maintains the investor’s position on its own books and records, and the investor’s executed subscription documents serve as proof of ownership. Under a clearing-firm custody model, the issuer must recognize the clearing firm as holding the security “for the benefit of” the underlying investor. The issuer must also deliver a no-lien letter and provide periodic valuations so the custodian can meet its obligations under SEC Rule 15c3-3 and customer account-statement requirements. Monark supports both models by synchronizing cap-table data, transmitting valuation updates, and structuring records to meet custodial and regulatory expectations. 

Recordkeeping Standards and Compliance with SEC Rule 17a-4

All investor data, subscription documents, communications, diligence materials, and supervisory files are retained in a manner designed to satisfy the retention standards of SEC Rule 17a-4 and FINRA Rule 4511. Monark maintains these records in tamper-evident formats, ensures that search and retrieval requirements are met, and preserves the full audit trail for each offering. While Monark makes these records available, all partners must also maintain their own records in accordance with the same standards.

Conclusion

Monark’s compliance framework reflects the combined requirements of SEC Regulations D and S, the antifraud provisions of the Securities Act, FINRA’s suitability, supervision, and communications rules, the Bank Secrecy Act and AML program obligations, and the books-and-records requirements under SEC Rule 17a-4. Through a unified infrastructure that standardizes subscription execution, share verification, cap-table synchronization, valuation delivery, and record retention, Monark enables broker-dealers, custodians, RIAs, and foreign intermediaries to operate in private markets with confidence and regulatory clarity.