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May 26, 2021 at 11:31 AM
What You Need to Know
- Commissioner Hester Peirce wants the SEC to give greater flexibility in determining who qualifies as an accredited investor.
- The agency expanded the definition in August 2020.
- Meanwhile, FINRA wants BDs to weigh in by June 28 on whether it creates “unintended barriers to greater diversity and inclusion.”
SEC Commissioner Hester Peirce, a Republican, wants new SEC Chairman Gary Gensler to prioritize this year giving greater flexibility in determining who qualifies as an accredited investor.
During the agency’s recent meeting of the SEC Small Business Capital Formation Advisory Committee, Peirce stated that “an entrepreneur who is plugged in to a network of financially sophisticated people should be able to go to those people for funding, even if they are not wealthy enough to meet our financial thresholds. We need to open additional doors to accredited investor status, such as educational credentials.”
Peirce said the SEC “laid the groundwork for such an opening in our most recent accredited investor rulemaking,” passed last August. “Now we need to act on it, and the Commission specifically invited this Committee to ‘make further recommendations, including additional certifications, designations, or credentials that further the purpose of the accredited investor definition.’”
The agency expanded its accredited investor definition on Aug. 26, 2020, to allow investors to qualify based on defined measures of professional knowledge, experience or certifications — including certain Financial Industry Regulatory Authority licenses — in addition to the existing tests for income or net worth.
Last September, Peirce vowed to advocate within the agency for more designations to be added as accredited investors.
“My view is we really ought to try to move away from these not completely arbitrary distinctions of, ‘you can invest and you can’t invest,’” Peirce said then during a Zoom event held by the Competitive Enterprise Institute.
Peirce added that it was “incumbent upon all of us to know ourselves and to know what our limits are but also to know when we need to get professional financial advice, which can help us make decisions, too.”
Gensler Weighs In
SEC Chairman Gary Gensler noted that the work of the Small Business Capital Formation Advisory Committee resonated with him as his father “started and ran a small vending machine business in Baltimore.”
A critical part of the SEC’s mission is to facilitate capital formation, Gensler said, and “American entrepreneurs and business owners rely on a diverse array of sources to fund their companies.”
In his dad’s case, “he used his mustering-out pay from World War II to buy used vending machines, fix them up, and build our family business. Today, who knows? He might have used equity crowdfunding platforms, though my daughters would’ve had to set up his account and do all his marketing for him,” Gensler said.
“The third part of the SEC’s mission — ‘facilitate capital formation’ — doesn’t pick winners and losers,” he continued.
“All companies, from small businesses to high-growth startups to corporations, deserve access to our capital markets to fund their entrepreneurial ideas and innovations, regardless of their race, gender, geography, or any other factor,” Gensler said.
“As a society, we still have a lot of work to do to correct unequal access to capital for underrepresented groups.”
Impact Of Rulemaking On Minority Groups
Indeed, SEC Commissioner Allison Herren Lee, a Democrat, stated in the meeting that the Commission “needs to confront how we go about assessing the effects of our rulemaking on these communities. Are there likely to be disproportionate costs to certain segments of our population from our policymaking? How can we best ensure that the benefits of our rules will indeed flow through to these communities?”
