The Accredited InvestorThe Securities and Exchange Commission decided in a 3-2 vote to ease the rules for investors who want to participate in the private capital markets, such as private equity, hedge funds and even startups. The criteria have changed from being hyper-focused on a person’s wealth to their knowledge of the financial markets by having a broker’s license or being deemed “knowledgeable employees” of a private fund. And while the SEC has come a long way, Commissioner Peirce revealed in a tweet that the rule makeover doesn’t quite go far enough.
In a more formal response, Commissioner Peirce called the new rule a “cautious expansion,” one that is a step in the right direction but also does not “assuage” her concerns about the investment landscape. She stated,
Americans shouldn't have to ask the SEC for permission to invest, but today's accredited investor rule at least offers people a path to ask permission based on their education, rather than simply telling them "no, unless you're rich": https://t.co/uP9zo8pVkZ— Hester Peirce (@HesterPeirce) August 26, 2020
Why shouldn’t mom and pop retail investors be allowed to invest in private offerings? Why should I, as a regulator, decide what other Americans do with their money?She went on to explain that the regulator is trying to protect people from losing their money by preventing them from doing so. Crypto Mom points out,
Someone who does not invest at all will not lose any money on investments. She will, however, lose. She will lose the opportunity to see her money grow more than it could sitting in a bank account. She will lose the opportunity to be part of enterprises that she believes will transform society. And she will lose her right to make decisions for herself.If someone didn’t know better they might think they were reading Satoshi’s whitepaper for Bitcoin.
Crypto Industry ResponseBeInCrypto reached out to Chen Arad, chief operating officer at Solidus Labs, for an industry response to the SEC’s new take on accredited investors. He told us,
The SEC’s announcement today is well-warranted and is exceptionally exciting news for anyone committed to financial innovation and inclusion — like so many of us in the crypto space. In particular, the new category introduced, which qualifies accredited investors based on professional certifications, can be very promising for our industry. While for the moment it only includes certifications relevant to traditional assets, the Commission stresses that in the future the category could be expanded to other credentials. Many in the crypto space hope that could include technology and crypto-related certifications or credentials.Arad went on to say,
At a higher level, the Commission is demonstrating its commitment to making capital markets more accessible, and that it’s willing to make big changes to let that happen. Soon, such big changes may include more leeway to expose traditional regulated markets to crypto assets, potentially via Bitcoin ETFs and other traditional instruments. That being said, at Solidus Labs we work closely with both regulators and the crypto industry, and we constantly remind our clients that it’s not a one-way street. To get there, the crypto industry will need to do its part and demonstrate to the regulator that it is committed to market integrity, transparency and compliance, not just in words, but through action, effective risk monitoring and comprehensive compliance programs.
Crypto Twitter’s ResponseCrypto Twitter largely cheered the SEC’s decision.
Still, others pointed out that the securities regulator didn’t go far enough. Meltem Demirors, chief strategy officer at CoinShares, which works with institutional investors, said the new rule was an “improvement but still too narrow.” She added that the “SIE should be an adequate exam for starters, covers basics of securities and doesn’t require a BD sponsor.”
Great move by the SEC.— Emin Gün Sirer (@el33th4xor) August 26, 2020
SEC Modernizes the Accredited Investor Definition https://t.co/n3kfZ1uPTx
Incidentally, the SEC published its new accredited investor definition on Women’s Equality Day. Commissioner Peirce took the opportunity to turn the tables on the SEC, challenging her peers to let that spirit spill over into the investment world, saying:
improvement but still too narrow IMHO— Meltem Demirors (@Melt_Dem) August 26, 2020
fund employees and knowledgeable persons already covered re: 2014 no action letter – https://t.co/FkVXH4E0gE https://t.co/uzdA2pqzBA
Now that we’ve had 100 years of women being able to vote as they choose, maybe it’s time to give women and men full freedom to invest as they choose.
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