SEC Wants to Add New Qualifications to Become Accredited Investor

The U.S. Securities and Exchange Commission (SEC) plans to enable more people and entities to invest into regulated financial instruments. 

As per a public statement released on December 18, the SEC aims to include a rundown of new qualifications to turn into an accredited investor. Currently, accredited investors are characterized as individuals with over $1 million in net worth (or who earn over $200,000 annually), an association with over $5 million in assets, banks, and institutions which meet specific legal definitions or entities that match particular other restricted terms.

Being an accredited investor enables individuals and entities access to more private investments, including riskier ventures and hedge funds, as per Bloomberg.

The term would expand to incorporate new classifications of “natural persons,” individual who qualify as “knowledgeable employees” of particular private funds, organizations which meet specific confinements, entities which “own ‘investments'” characterized under the Investment Company Act, family workplaces with at least $5 million in assets, and spousal counterparts who can pool finances to qualify.

The SEC released a concept paper earlier this year with different recommendations on expanding the definition. The document noticed that past proposals incorporated a knowledge-based test to decide if an individual could turn into an accredited investor.

As per Wednesday’s release, the suggested amendment would “more effectively identify institutional and individual investors that have the knowledge and expertise to participate” in private capital markets.

SEC Chairman Jay Clayton clarified in an explanation that the current definition only offers “a binary approach” to who does or doesn’t fit to qualify for the status.

“Modernization of this approach is long overdue,” he stated. “The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication.”

Clayton underscored that the amendment would likewise perceive Native American governments as entities which should have access to U.S. capital markets.

The amendment is available for public comment for 60 days after the proposal is available in the Federal Register, the official government record.