SEC to Boost Access to Crypto Investments With Proposed New Accredited Investor Definition
The U.S. Securities and Exchange Commission (SEC) has proposed amending the definition of “accredited investor” — a move that will increase access to regulated cryptocurrency investments. A number of them are currently only available to accredited investors. Among other changes, a person can qualify based on professional knowledge, experience, or certifications.
Modernizing SEC’s Approach
The SEC announced on Wednesday that it has proposed “to update accredited investor definition to increase access to investments,” which would result in more people being able to participate in SEC-regulated private capital markets. “The proposal seeks to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets,” the Commission’s announcement reads. Chairman Jay Clayton elaborated:
The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth … Modernization of this approach is long overdue.
The proposal also amends the definition of “qualified institutional buyer” in Rule 144A under the Securities Act of 1933. Certain limited liability companies and rural business investment companies (RBICs) will be added to the types of entities that are eligible for the qualified institutional buyer status. There will also be a “catch-all” category aimed at institutional accredited investors.
New Categories to Be Added
“The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication,” Clayton continued. “I also am pleased that the proposal specifically recognizes that certain organizations, such as tribal governments, should not be restricted from participating in our private capital markets.” The SEC added:
The proposed amendments to the accredited investor definition would add new categories of natural persons based on professional knowledge, experience, or certifications.
According to the proposal, natural persons may “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.”
For private fund investments, there would be “a new category based on the person’s status as a ‘knowledgeable employee’ of the fund.” Other proposed additions include those concerning limited liability companies, registered investment advisers, rural business investment companies, family offices, and spousal equivalent. The SEC is accepting public comments on the proposal for 60 days.
More Eligible Investors for Crypto Investments
While the SEC has not approved any bitcoin exchange-traded funds (ETFs), a number of crypto investments are available to accredited investors. According to the SEC’s current definition, an accredited investor includes:
Anyone who earned income that exceeded $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).
Among crypto investments available only to accredited investors are those offered by Bitwise Asset Management. “Investors must be accredited and U.S.-based,” the company’s website notes. Bitwise had a proposed rule change filed with the SEC for a bitcoin ETF called Bitwise Bitcoin ETF but it was rejected in October. However, that decision is currently under review.
Another company with crypto investment products for accredited investors is Grayscale Investments. Its website explains that products offered are private investment vehicles that are not registered with the SEC or any other regulatory agencies, adding that their offerings are “made only to certain qualified investors who are ‘accredited investors’ as defined under Regulation D of the Securities Act of 1933.”
What do you think of the SEC amending the definition of “accredited investor”? Let us know in the comments section below.
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