Article by Sophia Kunthara, posted on the Crunchbase website 8-26-20  Click HERE to view original post

 

The U.S. Securities and Exchange Commission said Wednesday that it has expanded the definition of an “accredited investor,” allowing people with professional knowledge, experience or certifications to qualify as accredited investors.

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The new amendments to the accredited investor definition also increases the list of entities that can qualify as accredited investors. 

“For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication,” SEC Chairman Jay Clayton said in a statement. “I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings.” 

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Previously, the SEC rules defined an accredited investor as someone who earned more than $200,000 annually for the past two years or more than $300,000 combined with their spouse. It also included people who had an individual or combined net worth of more than $1 million, excluding the value of their home.

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The rules governing accredited investors are designed to protect individual investors. They’ve operated on the idea that the private markets are riskier and less transparent than public markets and that only higher net-worth investors should thus be able to participate. But the regulations have also drawn criticism for being too exclusionary and keeping investment opportunities among the wealthiest people.