SEC Plans to Update Accredited Investor Definition for US Capital Markets


The US SEC wants to allow more people and entities to invest in regulated financial instruments. It also plans to update the accredited investor definition for US capital markets.

20 December, 2019 | AtoZ Markets – According to a press release issued on Wednesday, the SEC intends to add a list of new qualifications to become a qualified investor. Currently, Accredited Investor Definition is for the individuals whose net worth is greater than $ 1 million or earning over $ 200,000 per year. And for an organization is over $ 5 million in assets. Banks and institutions should also meet certain legal definitions.

Accredited Investor Definition under the SEC Amendment

According to Bloomberg, an accredited investor allows entities and individuals to have access to more private placements. It also includes riskier investments and hedge funds.

Under the SEC amendment, the term would broaden to include new categories of “natural persons.” The term is based on the person’s status as a “knowledgeable employee” of the fund. Also, the term is for companies that meet certain restrictions, entities that hold investments defined under the Investment Company Act. Moreover, the term is for family offices with assets of at least $ 5 million and spousal equivalents who can pool their finances to qualify.

The SEC released a concept paper earlier this year with further suggestions on expanding the definition. The document also indicated that previous suggestions included a knowledge-based test in determining an accredited investor.

Read More: US Regulator Fines Robinhood $1.25 Million

The Proposed Amendment is for Effectively Identifying the Investors

According to Wednesday’s press release, the proposed amendment would more effectively identify institutional and individual investors who have the knowledge and expertise to participate in private capital markets.

SEC Chairman Jay Clayton said in a statement:

“The current definition only provides a binary approach to determine who is or is not eligible for this status. Also, the modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets.”

The amendment would also recognize Native American governments as entities that should have access to the American capital markets. The amendment is open to public comment for 60 days. It is after the proposal is published in the Federal Register, the official government registry.

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