Outlook good for expanded accredited investor definition after strong approval in House

Congress could act before the end of the year to allow more people to invest in unregistered securities, including retail investment advisers and brokers. Late Monday, the House passed legislation, 391-2, that rolled up six measures the chamber approved earlier in the year to help small businesses raise capital. One of them would expand the accredited investor standard, which sets parameters for who is considered a sophisticated investor eligible to participate in private placements. The House passed the six bills as a package, the Creating Financial Prosperity for Businesses and Investors Act, in order to tee it up for expedited approval by unanimous consent in the Senate, which can be done by a voice, rather than roll call, vote. The tactic could be stymied, however, by an effort led by Sen. Mark Warner, D-Va., to hold up the unanimous consent process until the Senate addresses legislation to help retired mine workers. The House and Senate are expected to conclude the lame-duck session of Congress sometime over the next week. The Securities Industry and Financial Markets Association urged Congress to approve the repackaged House bill. The measure “rightfully focuses on promoting capital formation and decreasing unnecessary friction in our securities laws while upholding necessary customer and market protections,” SIFMA president and chief executive Kenneth Bentsen Jr. said in a statement. The six-bill measure includes legislation first approved in February by a 347-8 vote that would broaden the parameters for an accredited investor. Current rules limit accreditation to investors who have more than $1 million in net worth, excluding the value of their home, or earn more than $200,000 annually. Under the reform bill, the accredited investor definition would encompass people with securities-related licenses, such as investment advisers and brokers, and those who have education or experience related to a particular investment, such as a doctor who wants to participate in a biomedical startup. Under the Dodd-Frank financial reform law, the Securities and Exchange Commission must regularly review the accredited investor standard. Last December, the agency released a staff report about options for reforming the criteria. The SEC Investor Advisory Committee also has expressed support for an update, while calling for appropriate investor protections to be included.