SEC proposes wider definition of 'accredited investor' to expand market access

What defines an "accredited investor?" According to a new announcement from the U.S. Securities and Exchange Commission, the exact standards are on the path to be broadened.

The current criteria for the accredited investor status only takes into account a person’s income and net worth. Only those with over $1 million in net worth, $200,000 in annual income, or $300,000 in joint annual income can gain access to private securities offerings, hedge funds, and private-equity funds.

Institutions also need more than $5 million in assets to meet the legal requirement for accredited investors.

The newly proposed amendment would expand the test to include those with professional knowledge, experience, or certifications that could prove their qualification to participate in private capital markets. 

“Modernization of this approach is long overdue,”  SEC Chairman Jay Clayton said in a press release. “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.”

While there was no overt connection drawn in its announcement, the proposed change would expand access to certain crypto-related financial products that are only available to U.S. accredited investors.

For example, the $2.2 billion crypto asset manager Grayscale, for example, only allow accredited investors to participate in its Bitcoin Trust, Bitcoin Cash Trust and Ethereum Trust, among other funds. Bitwise’s private index fund and Galaxy Digital’s bitcoin funds are also limited to accredited investors.