The Definition of ‘Accredited Investor’ to Be Amended by the SEC

In a move that holds the potential to boost access to investments in cryptocurrencies, the Securities and Exchange Commission (SEC) has recently proposed an amendment in the definition of ‘accredited investor’ as cited by a press release on Wednesday. The SEC also declared that they will accept public comments on the proposal for a period of 60 days.

The purpose of the Commission here is to update and improve the definition so that it can effectively identify institutional and individual investors that have the knowledge and expertise to participate in their private capital markets. Another reason is the increased access to investments which will make more investors eligible to participate in SEC-regulated private capital markets.

Currently, an accredited investor is defined as anyone who has earned income exceeding $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, or has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence). Although the SEC is yet to approve any Bitcoin exchange-traded funds (ETFs), as per the existing law, many investments related to cryptocurrency are available only to accredited investors.

For instance, crypto investments offered by Bitwise Asset Management and Grayscale Investments are available only to accredited investors. Now, the Commission proposes to amend the definition of ‘accredited investor’ to add new categories, permitting natural people to qualify as accredited investors based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution. It also proposes to add limited liability companies that meet certain conditions, registered investment consultants, and rural business investment companies (RBICs) to the current list of entities that may qualify as accredited investors.

The proposal would also add a new category based on the person’s status as a knowledgeable employee of the fund for investments in a private fund. Additionally, it would add a new category for any entity, including Indian tribes, owning investments, as defined in Rule 2a51-1(b) under the Investment Company Act, more than $5 million and that was not formed for the specific purpose of investing in the securities offered. 

Further, the SEC proposes to add family offices with at least $5 million in assets under management and their family clients, as each term is defined under the Investment Advisers Act, and add the term spousal equivalent to the accredited investor definition, so that spousal equivalents may pool their finances to qualify as accredited investors.

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