The changes to the definition of “Accredited Investor” that the SEC approved in August of 2020 officially went into effect on December 8th. The changes now allow people to qualify based on factors other than net worth. Now individuals will be able to qualify as an Accredited Investor based on clear measures of financial sophistication, such as professional knowledge and experience or certifications in addition to the traditional test for income or net worth. The change also expanded and updated the list of entities that can meet the definition an participate in certain private offerings.
The SEC’s intentions with the change were to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.