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SEC to Take Up Long-Awaited Accredited Investor Definition Changes

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The Securities and Exchange Commission plans to take up Wednesday the long-awaited changes to the agency’s “accredited investor” definition.

The securities regulator notes that the amendments “are the product of years of efforts by the Commission and its staff to consider and analyze possible approaches to revising” the definition.

In December, the agency put the proposed changes out for a 60-day comment period.

Expanding the entities that qualify based on an investment test instead of an asset test are among the anticipated changes.

“The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth,” said Chairman Jay Clayton at the time.

“Modernization of this approach is long overdue,” Clayton argued, stating that the plan “would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication.”

Anna Pinedo, a partner in Mayer Brown’s New York office and co-leader of the Global Capital Markets practice, told ThinkAdvisor in a Monday email message that the accredited investor proposals “came after a number of studies and various rounds of comment opportunities,” and that she expects “few surprises.”

Pinedo said she anticipates the following amendments to the definition:

  • Individuals, regardless of net income/net worth, that have various FINRA broker-dealer licenses, including Series 7 and Series 65, as well as likely Series 3, Series 6, Series 66, Series 86 and Series 87;
  • No new category added for individuals based on investment history, investment experience, or other professional studies or degrees;
  • ‘Qualified purchasers’ expressly added as AIs, as well as with respect to fund private placements, knowledgeable employees of that fund;
  • Spousal equivalents will be allowed to pool net worth to meet the standard;
  • Registered investment advisors, family offices, family clients and rural business investment companies will be added;
  • The SEC will clarify that LLCs that have assets in excess of $5 million will be added as AIs and that persons at an LLC that perform roles equivalent to an executive officer also will be AIs;
  • The SEC will not make changes at this time that would allow an investor that is advised by a registered investment advisor or a broker-dealer to be deemed an accredited investor.

The last measure “likely would be deferred until there is more experience with Reg BI and/or more study of this” change, Pinedo said.

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