Home SEC The SEC Updates the Definition of Accredited Investors

The SEC Updates the Definition of Accredited Investors

  • The US Securities and Exchange Commission (SEC) have today decided to update the definition of the accredited investors.
  • The SEC has also updated the list of entities including tribal governments and a handful of companies that may qualify as accredited investors for some private offerings. 
  • It also pointed on class of investors like hedge fund employees or broker.

The US Securities and Exchange Commission (SEC) have today decided to update the definition of the accredited investors. As per its latest press release, one of the major challenges that SEC faced previously was to distinguish the eligibility of the investors who could take part in their private capital markets. Previously, the investors who did not meet the threshold of the income and the net worth requirements, were debarred from the opportunity of investing in SEC’s private markets. The updates and the modernization in the amendment will help in recognising retail and institutional investors with prior knowledge and experience in the field. 

Other Tests to be Included Apart From the Income Tests

Chairman Jay Clayton elaborated the years of effort of the SEC that was put in creating these tests for the accredited investors. He said for the first time in history investors will not only be distinguished on the basis of their income but also on the basis of their establishment and proficiency in financial sophistication.

The SEC has also updated the list of entities including tribal governments and a handful of companies that may qualify as accredited investors for some private offerings. 

Decision Received Criticism as it may Leave Investors Unsafe

The SEC confirmed that the investors would be qualified as accredited investors on the grounds of proper ‘professional knowledge, experience or certifications’ in addition to the income tests.

The amendment will benefit the retail investors as they can access a larger number of private companies. However, the SEC’s decision was criticised by several investors. According to them, even experienced investors can struggle in dealing with private corporations. To be specific, it faced criticism from the agency’s Democratic commissioners who were against the amendment. This was because according to them it may leave investors unprotected. 

Ease of Access for Native Americans and Foreign Individuals

Although, the SEC did not reveal how many investors would not qualify as accredited investors but it was quite evident that it was pointed on class of investors like hedge fund employees or brokers.

They may have lacked the minimum income requirements but were quite experienced about private offerings. Moreover the amendment will also secure the family offices with at least assets worth $5 million. Residents of Native American and foreign immigrants can also qualify as accredited investors with ease.

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Ritika Sharma
Ritika Kumari Sharma is an Economics Honors graduate from the University of Calcutta. She is completely into finance and believes that cryptocurrencies are the future. She is an enthusiast learner about the cryptocurrency and blockchain technology.

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