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Inside of the Rotunda at the U.S. Capitol in Washington, D.C. September 20, 2013. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL.

Regulation and Compliance > Legislation

House Passes Bill Requiring SEC to Update Small Business Definition

By Melanie Waddell

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The full House passed Tuesday the Small Entity Update Act, legislation that requires the Securities and Exchange Commission to update the definition of “small business” for the purpose of securities regulation.

The bill, introduced by Rep. Ann Wagner, R-Mo., requires the SEC to report on and revise the definition of small entity every five years. Agencies are required to consider the impact of their rules on small entities under the Regulatory Flexibility Act.

Specifically, the bill would direct the SEC to conduct a study, followed by a rulemaking every five years, including defining the term “small entity” under the Regulatory Flexibility Act.

The SEC currently defines a small business as having less than $100 million in annual revenue.

Under the bill, “the SEC must provide specific and detailed recommendations to Congress on how the SEC can revise the definition of small entity to (1) align with specified statutory goals, including reducing unnecessary burdens on small entities; and (2) to expand the number of entities covered,” the bill explains.

This legislation directs the SEC “to assess regulatory costs of compliance for small and growing businesses, ensuring that regulations placed on these businesses are not overly burdensome,” Wagner said in a statement.

The SEC must also issue a proposed rule to implement these recommendations.

The Investment Adviser Association said Wednesday in a statement that it’s “delighted” the House passed the bill.

“The SEC has not, as a practical matter, been required to analyze the economic impact of its regulations on small businesses under the Regulatory Flexibility Act (RegFlex) because virtually no SEC-registered advisers fall under the definition of small business adopted by the SEC,” Neil Simon, vice president of government relations for the IAA, told ThinkAdvisor Wednesday in an email.

“Inexplicably, the SEC definition includes only advisory firms with less than $25 million in assets under management (AUM) — when, with rare exceptions, an advisory firm must have a minimum of $100 million AUM to fall under the SEC’s jurisdiction,” Simon said.

Congress, Simon continued, “gave the agency authority under the RegFlex Act to update this definition, but the agency has failed to do so.”

For this reason, the IAA “strongly supports” the Small Entity Update Act as it would “require the SEC to analyze the impact of regulations and consider alternative approaches that minimize the burden on small businesses” and urges the Senate to consider it promptly.

Melanie Waddell

@Think_MelanieW

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