More and more eligible individuals
The SEC has recently updated its definition of an accredited investor. The previous one had been in effect since 1985, despite the requirement to review it every 4 years. This amendment to the doctrine broadens the spectrum of persons and entities eligible for this status.
The qualified investor, the exception to the registration of securities issues
There are also a good number of entities eligible for this status, including banks, development capital companies or investment funds. These reputable investors are often the only ones who have access to the sophisticated financial products on the market, including the various Crypto Bank versions that have been available to date (while a true Bitcoin ETF is still pending).
In order to protect the public from risky investments, the SEC requires that financial securities be registered before being offered or sold. However, registration of securities is a cumbersome and costly process.
However, there is a very useful registration exemption. The SEC considers that persons with sufficient „financial sophistication“ are permitted to invest in unregistered securities.
So who are qualified investors? Prior to August 2020, individuals could only be considered qualified investors if they met one of the following two criteria:
Asset value (excluding principal residence) greater than $1 million
Annual remuneration in excess of $200,000 (or $300,000 for a couple)
The new definition of a qualified investor
This updated definition includes three categories of natural persons and four categories for legal entities :
Financial professionals. The changes allow individual investors to be eligible on the basis of professional qualifications and approvals, such as investment advisor.
Informed employees. This new category of qualified investor concerns the employees of a financial entity, such as an investment fund, who actually possess real investment expertise.
High net worth individuals. This category is based on the previous patrimonial criteria. However, the new regulations include „quasi-spouses“ in the calculation of wealth. This notion includes civil unions equivalent to the French PACS.
Entities with at least $5 million in assets under management. The amendment adds a new category that includes any type of entity with investments in excess of $5 million.
Family offices. These private wealth managers are eligible if they have at least $5 million in assets under management and are headed by a person with recognized financial expertise.
Institutional buyers. Players with more than $100 million in assets under management are considered institutional buyers.
By adding eligibility categories based on professional knowledge, experience, or certifications, the SEC is broadening the number of individuals eligible to issue unregistered securities.
This measure is in line with the U.S. policy of revitalizing the economy and facilitates access to the private capital market for individuals providing liquidity to the market. It will also allow crypto projects to raise funds from a wider public without having to register with the SEC or fear sanctions.