The Securities and Exchange Commission, or SEC, is now amending its definition of an “accredited investor” to relax the purely wealth-based requirements, after announcing such plans in December 2019.
Accredited investors in the U.S. enjoy special privileges with the SEC — namely being able to participate in certain types of simplified securities sales like Regulation D.
The SEC noted that previous definitions relied on specific income and net worth criteria, which did not take their actual “financial sophistication” into account. In the case of the U.S., these requirements amounted to either $1 million in net worth or a stable income of at least $200,000 per year.
The criteria is now expanded as the “product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” SEC chairman Jay Clayton said.
The details are as of yet not fully clear, but the new definition will allow people to qualify as accredited investors based on “professional certifications, designations or credentials, or other credentials issued by an accredited educational institution.”
These educational institutions are to be designated at some future time at the SEC’s discretion. It is unclear what types of institutions could become accredited for these purposes, and whether it would require specialized training courses or general economics and finance education.
Other minor expansions of the criteria include “knowledgeable employees” of private investment funds and family offices with more than $5 million in assets under management.
The decision could be consequential for crypto-based fundraising, as it would expand the list of potential investors in security token offerings. However, it remains to be seen if the new measures will be generalized enough to expand the pool of accredited investors by a significant amount.