The Securities andExchange Commission (SEC) is interested in potentially allowing more individuals and entities to participate in regulated financial instrument investments. In effect, it wants to change the accredited investor test. The SEC, according to a press release issued on Dec. 18, 2019, plans to add additional new ways one may become an accredited investor. Currently, the definition of an accredited investor is an individual with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year, or having a net worth of more than $1 million USD excluding the value of primary residence, or an organization with over $5 million in total assets, or banks, institutions, and entities that meet particular legal definitions and terms.
As an accredited investor, you can gain access to a larger number of unregistered private investments. These include hedge funds and other investments.
Potential Expanded Definition
Under the amendment proposed by the SEC, the accredited investor definition – or accredited investor test – would expand to encompass new categories of natural persons such as the following:
- Knowledgeable employees of particular private funds
- Family offices having $5 million in assets minimum (or with spousal equivalents who can gather finances to qualify)
- Companies that adhere to certain restrictions
- Entities that own investments that meet the criteria of the Investment Company Act
The SEC published a concept paper that offered other suggestions on expanding the accredited investor definition. The paper referred to previous suggestions for changing the definition such as a knowledge-based test for individuals to determine if they could qualify as an accredited investor.
Identifying More Investors With Knowledge and Expertise to Participate
The proposed SEC amendment could more effectively identify individual and institutional investors who possess expertise and knowledge to participate in private capital investments.
The SEC chairman explained that modernization to the approach of determining who qualifies as an accredited investor is overdue. He indicated that the proposed changes would add additional ways for individuals to qualify for participation in private capital markets based on clear and established determinations of financial sophistication.
The proposals eventually published in the Federal Register, the official government record, after the 60 day period in which the amendment is open for public comment.
If you are interested in obtaining verification of accredited investor status based on the current accredited investor test, contact an experienced investor verification service today.
