SEC proposes to increase retail access to private markets

The proposal would expand the definition of accredited investor

The U.S. Securities and Exchange Commission (SEC) voted to expand the definition of accredited investors, widening access to its exempt markets.

The SEC said Wednesday that the proposed amendments would allow more retail investors to participate in private offerings by allowing investors to qualify as accredited investors based on their professional knowledge, experience, or certifications, not just their income or wealth.

“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,” said SEC chairman Jay Clayton.

“Modernization of this approach is long overdue. 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.”

In a dissenting statement, commissioner Robert Jackson said the proposal “does not take seriously the investor protection concerns present in private markets.”

He pointed to evidence of higher incidence of sales practices complaints and broker misconduct in the private markets.

“If investors are already struggling to sort good brokers from bad in these markets, it’s far from clear why we should expose even more investors to those risks,” he said.

The proposal, which will go out for a 60-day comment period, would also expand the list of entities that can qualify as accredited investors.

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