The US Securities and Exchange Commission (SEC) on Wednesday announced the easing of requirements to include investors in the number of accredited investors. This is an important change as it may open up opportunities for new investors to participate in private placements. Nevertheless, experts urge not to overestimate its importance for the cryptocurrency market.
In accordance with the old definition, only investors with more than $1 million in assets or earning more than $200,000 per year could participate in such proposals. It is assumed that they have sufficient qualifications to independently make decisions about supporting high-risk projects, and will be able to endure losses if they arise.
Under the new rules, assignment to the category of accredited investors is no longer determined solely by capital. “Professional certifications, titles and qualifications” will be taken into account. The SEC is currently collecting comments on which selection criteria it should use.
Carlton Fields lawyer Drew Hinkes notes that in its current form, the change will not fundamentally affect the category of accredited investors, since most investment bankers are already included in it, but in the future Congress may make significant additions to it.
As SEC Commissioner Hester Peirce explained, their goal was not to provide access to high-risk offers to “retail mom and dad investors,” but to reflect the fact that “wealth and income are not always the perfect yardstick for investor advancement.”
It should be said that a new decision will not bring significant changes for Forex traders. They are also accredited but there will not be any change. Even in the tools that Forex traders use, some of them are also classified as accredited while some are not. Regardless most of these tools are considered the most useful for a trader’s process. This is why people believe that comparing mt4 mt5 and ctrader is a very meaningless argument. Same can be said about the argument comparing an accredited Forex trader to an accredited crypto trader; they’re still both traders.
What does this mean for the cryptocurrency market?
Marc Boiron, who is a partner at the law firm Manatt, Phelps & Phillips, LLP, declared that the new definition does not change anything for participants in the cryptocurrency space, since most investors carry out transactions with cryptocurrencies that are either not securities or are not perceived as such.
At the same time, he admits that, in theory, the latest changes can expand access to cryptocurrency projects in the early stages, including closed token sales. Recently, such projects have increasingly adopted a closed sale model with the participation of accredited investors, in an effort to comply with SEC regulations to reduce registration requirements.
Seamus Donoghue, Vice President of Sales for METACO, believes that the latest changes could help new investors join the cryptocurrency space, as entrepreneurs have a new target audience to promote their offerings.
He said that the SEC would potentially increase market access if the qualifications of investors are no longer measured solely by the volume of liquid assets, and would also reflect market knowledge, education or professional certification.
At the same time, Donoghue also admitted that the consequences of this action for most participants in the cryptocurrency market will be minimal, and the group of investors who can take part in closed placements of projects from the field of digital assets will not expand significantly.
He also added that If the SEC added licensed or certified professionals to the accredited investor category, the impact could be more tangible.
NEM Group Investment Director Dave Hodgson said that until Congress determines what qualifications are sufficient to qualify you as savvy enough to manage your own money, it’s hard to tell how profound the change will be.
What does the new rule really mean?
Judging by the new rules of the US Securities and Exchange Commission, the concept of “accredited investor” is now based on the concept of “financial sophistication” of a person, and not only on the amount of his net worth. However, it is not entirely clear how investors will meet this criterion. Other amendments to the concept include:
- The accredited investor has appropriate financial industry certifications, such as Series 7, Series 65 or Series 82 licences. In addition, the US Securities and Exchange Commission states that the list will grow over time;
- For the purpose of investing in a private equity or venture capital fund, “employees with certain information”, such as an executive director, partner or board member, must meet the new standard;
- Other rule changes expand the possible pool of investors:
- The so-called “spousal equivalent” has been introduced. It allows prospective investors and their spouses (or equivalent partners) to pool their finances to achieve accredited investor status;
- Family offices with at least $5 million in assets will now qualify as family clients of those offices.