New Bill Qualifies Accredited Investors by SEC Exam
The bill would allow more people with the expertise, but not the required income or wealth, to invest in private companies.
Rep. Patrick McHenry, R-N.C., ranking member of the House Financial Services Committee, introduced legislation Wednesday to expand who qualifies as an accredited investor.
The bill, the Equal Opportunity for All Investors Act of 2021, directs the Securities and Exchange Commission to create an exam that people with investment knowledge and expertise can take to be certified as an accredited investor.
“The accredited investor regime keeps everyday Americans on the sidelines,” McHenry said in a statement. “My bill will allow more investors to qualify as ‘accredited investors,’ providing them with more opportunities to invest their money the way they want.”
Investment in most private companies is limited to “accredited investors,” McHenry said, “which are generally people with either $1 million of net worth (excluding the value of their house), individuals who make $200,000, or families that make $300,000. This excludes most Americans from investing in some of the highest-growth phases of companies.”
The bill states that an SEC exam would ensure that those certified as an accredited investor understand and appreciate “the risks of investing in private companies,” and that the exam would also be “designed to ensure that an individual with financial sophistication or training would be unlikely to fail.”
The SEC’s exam, according to the bill, “may be administered by a registered national securities association.”
The SEC said in mid-June that it plans to further amend rules pertaining to the accredited investor definition.
The SEC’s Regulatory Flexibility Agenda, filed with the Office of Management and Budget’s Office of Information and Regulatory Affairs, states under “Exempt Offerings” that it plans to update the financial thresholds in the accredited investor definition.
In August 2020, the agency expanded the definition to allow investors to qualify based on defined measures of professional knowledge, experience or certification, in addition to the thresholds for income or net worth.
Those thresholds remained unchanged: a net worth of at least $1 million excluding the value of primary residence, or income at least $200,000 each year for the last two years (or $300,000 combined income if married).