The full House plans to vote this week on the Accredited Investor Definition Review Act, H.R. 1579, which would broaden the accredited investor definition to include those holding certain designations, certifications and credentials.
The bill was introduced by Rep. Bill Huizenga, R-Mich., and passed the House Financial Services Committee with an overwhelmingly bipartisan 41-2 vote on April 26.
“The ability to participate in a private offering should not be limited to individuals that pass some type of federal government assets test,” Huizenga said in a statement. “Instead, the ability to participate should be expanded to include all individuals that demonstrate they have a sufficient understanding of the offering and the risks involved.”
The Accredited Investor Definition Review Act would update the Securities Act of 1933 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
What Is an Accredited Investor?
Accredited investors have access to investments that are not registered with regulators — in early-stage companies or certain cryptocurrency trusts, for example.
The Securities and Exchange Commission requires individual accredited investors to have:
- Net worth over $1 million, excluding primary residence (individually or with spouse or partner), or
- Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.
Investment professionals holding Series 7, 65 or 82 licenses; clients of family offices; and certain people who work with private offerings can also be accredited investors.
Huizenga’s bill would require the SEC “to incorporate additional ‘certifications, designations, or credentials that further the purpose of the accredited investor definition’ within 18 months, and thereafter, assess the addition of certifications, designations or credentials every 5 years,” he has explained.
Due to its focus on wealth, the current definition is “antiquated” and “limits funding for small business startups and shuts everyday Americans out of this portion of our capital markets,” he argues.
Huizenga said his bill would require the SEC to update the list of certifications, “including the ‘millionaire requirement’ that an investor must satisfy to qualify as an accredited investor to ensure that all Americans have an opportunity to participate in the growth and success of our economy.”
Will It Become Law?
Michael Canning, principal and founder of The LXR Group in Washington, told on Tuesday in an email that “depending on the margin of the final vote in the House, this bill could have a chance to become law.”
That said, Canning continued, “it’s not clear what if anything the effects would be, at least in the near term. The SEC looked at the question of whether credentials should confer accredited status in 2020, under former Chair [Jay] Clayton, and opted not to recognize any credentials other than passage of certain FINRA and NASAA exams. If the SEC was required to take another look at the question, now or in the near future, it seems unlikely that it would reach different conclusions or add additional credentials or designations.”
The SEC has signaled that it wants to raise the income and net worth thresholds for accredited investors, not lower them.