SEC Expands Accredited Investor Definition to Include Individuals with Relevant Knowledge and Expertise, Entities Meeting Investments Test to Participate in Private Markets – Also Adopts Amendments Related to Regulation S-K
The SEC today adopted final amendments to the accredited investor definition that would more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private markets. The amendments to the accredited investor definition are the latest in the SEC’s broad effort to improve and harmonize the exempt securities offering framework following their June 2019 concept release.
The amendments allow individuals to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications such as holding Series 7, Series 65 and Series 82 licenses, in addition to the existing tests for income or net worth. The amendments also include individuals who are “knowledgeable employees” of a private fund with respect to investments in the fund. The amendments expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify. Please see the detailed press release from the SEC for a comprehensive overview of the latest amendments.
The IPA submitted a comment letter in March in response to proposed amendments to the accredited investor definition. We believe this is an important first step to updating the definition, which has not been significantly updated since its inception in 1982. While the SEC could have gone further in updating a definition that is a cornerstone of Regulation D, the IPA supports the SEC’s invitation for additional public feedback and comment. We also encourage the SEC to make suggested changes related to retirement plans in rulemaking this year.
In addition to amendments to the accredited investor definition, the SEC adopted amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. Please see the official statement from the SEC for a complete overview of updates.
The IPA looks forward to working with the SEC and other regulators and legislators on this and other critical advocacy issues impacting the IPA community.
If you have any questions, please don’t hesitate to reach out to Tony or me.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives