SEC Adopts Final Rules to Modernize Accredited Investor Definition, but Falls Short of Expanding Definition to Include Professional Experience

Strategic Insights -

The Securities and Exchange Commission (SEC) has adopted final rules to modernize the accredited investor definition, expanding the definition to include individuals with special certifications. However, Rep. French Hill (R-AR) and other lawmakers have expressed disappointment that the new definition does not include professional experience, a key provision in the Fair Investment Opportunities for Professional Experts Act. This ruling will allow more individuals to invest in private offerings, but critics argue that it does not go far enough in opening up investment opportunities to a broader range of Americans.

Key Takeaways:

  • The SEC has adopted final rules to modernize the accredited investor definition, expanding it to include individuals with special certifications.
  • Rep. French Hill (R-AR) and other lawmakers have expressed disappointment that the new definition does not include professional experience, a key provision in the Fair Investment Opportunities for Professional Experts Act.
  • The current definition of an accredited investor focuses on the financial status of the investor, limiting investment opportunities to wealthy individuals.
  • The Fair Investment Opportunities for Professional Experts Act was introduced by Reps. Hill and Schweikert in October 2019 (H.R. 4762) and Senator Tillis in April 2018 (S. 2756) to expand the definition of an accredited investor to include individuals with relevant education, professional expertise, or other similar credentials.
  • The new rule does not address the significant costs and barriers to raising capital in the U.S. public markets, which are a major obstacle for small companies seeking to expand.
  • Rep. Hill has pledged to continue working with his fellow policymakers to expand the definition of the accredited investor to allow those with professional experience to invest in their industries.

Statistics:

  • According to the SEC, the current definition of an accredited investor is based on a test that requires investors to have investable assets of at least $1 million or gross income of at least $300,000 for the past two years.
  • The Fair Investment Opportunities for Professional Experts Act has been introduced in both the House and Senate, with bipartisan support.
  • The SEC received over 250 comment letters from investors, industry groups, and members of Congress on the proposed rule, including a comment letter led by Rep. Hill in March 2020.
  • The House Financial Services Committee passed a previous version of the legislation, H.R. 1585, by an overwhelming bipartisan vote of 58-2 in the 115th Congress.

Sources:

  • Congressman French Hill (AR-02) WASHINGTON D.C.
  • Sen. Thom Tillis (R-NC)
  • Rep. David Schweikert (R-AZ)
  • Securities and Exchange Commission (SEC)
  • House Financial Services Committee
  • Contify.com