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House Passes Bills to Broaden ‘Accredited Investor’ Definition

U.S. Financial Services Committee | Jun 5, 2023

Rep French Hill - House Passes Bills to Broaden 'Accredited Investor' Definition

Expanding Investment Opportunities: The U.S. House of Representatives has approved seven bipartisan financial services bills aimed at strengthening public markets and boosting capital formation.

  • Expanding the Accredited Investor Definition:
    • Key among these is H.R. 835, the Fair Investment Opportunities for Professional Experts Act, which widens the definition of accredited investor.
    • This is expected to increase the pool of potential investors for small businesses and emerging companies, especially minority entrepreneurs who frequently face challenges in securing funding.
  • Other significant legislation includes H.R. 2608 and H.R. 2610, both sponsored by Chairman Patrick McHenry. These bills intend to improve the attractiveness of public markets for emerging growth companies by clarifying and extending financial reporting obligations under the JOBS Act of 2012. This could potentially streamline the process of initial public offerings (IPOs) or spin-offs, which in turn can drive efficiency and capital formation.

See:  Improving the Regulatory Environment for Entrepreneurial Capital Formation: JOBS Act 4.0

  • Increasing Access and Protection in Capital Markets:
    • Legislation such as the Accredited Investor Definition Review Act (H.R. 1579) and the Senior Security Act of 2023 (H.R. 2593) demonstrates a dual commitment to opening up investment opportunities and safeguarding investor interests.
    • While H.R. 1579 aims to broaden participation in economic growth by updating the list of certifications required to qualify as an accredited investor
    • H.R. 2593 focuses on protecting senior investors from fraudulent activities in the capital markets.
    • Accredited Investor Certification Exam: The House has passed another bill H.R. 2797 - The Equal Opportunity for All Investors Act of 2023 - which mandates the Securities and Exchange Commission to develop an accredited investor certification exam. Rep. Mike Flood, co-sponsor of the bill, believes that the definition of an accredited investor should not be based solely on wealth, but should also consider the knowledge and capabilities of investors.

Read:  The Real Story of Access to Capital

  • Opposition and Concerns:
    • Not everyone supports the expansion of the accredited investor definition. Micah Hauptman, Director of Investor Protection for the Consumer Federation of America, expressed strong opposition to H.R. 835, arguing it might reduce protections for investors in the public markets. Likewise, Hugh Berkson, President of the Public Investors Advocate Bar Association, emphasized the need for oversight measures to protect retail investors from potential risks associated with expanded access to private securities.

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