On August 26, 2020, about a year after its initial Concept Release and Request for Comment on revising the Accredited Investor definition, the SEC adopted significant amendments to the definition in order to “effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.”
In his remarks on the amendments, SEC Chairman Jay Clayton stated, “Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition […] For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth but also based on established, clear measures of financial sophistication.”
The SEC issued a Concept Release on June 18th, 2019 that reviewed the framework for exempt offerings, including several exemptions from registration under the Securities Act of 1933 that affect capital raising. The SEC sought the public’s comment on possible ways to “simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.”
In the Concept Release, the SEC Staff requested public feedback regarding ways to modernize this framework, with an emphasis on the accredited investor definition, one of the principal tests for determining who is eligible to participate in private capital markets. As stated in today’s SEC press release, “Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets.”
Highlights of the expanded definition for individual investors include those who:
It is worth noting that the approach regarding the Series exams gives the Commission the “flexibility to reevaluate or add certifications, designations, or credentials in the future.” Members of the public are also being encouraged to propose additional certifications, designations, or credentials for consideration.
The updated definition and amendments are to become effective 60 days after publication in the Federal Register.
Read the Full SEC Press Release Here:
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