Date: June 4, 2023
The House of Representatives has passed legislation that mandates the Securities and Exchange Commission (SEC) to develop an accredited investor certification exam.
The bill, known as The Equal Opportunity for All Investors Act of 2023, was introduced in April by Representatives Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.).
“H.R. 2797 provides a pathway for Americans to become accredited investors by allowing individuals seeking status to take an examination,” stated Flood. The exam will be established by the SEC and administered by the Financial Industry Regulatory Authority (FINRA).
“I firmly believe that the accredited investor definition should not be tied exclusively to wealth,” Flood emphasized in a statement following the bill’s passage. “Instead, we should unlock opportunities for knowledgeable investors that may not come from means.”
Representative Ann Wagner (R-Mo.), chairwoman of the House Financial Services Subcommittee on Capital Markets, explained on the House floor that under H.R. 2797, “if you can demonstrate competency with these types of investments through an exam, then you qualify as an ‘accredited investor’… by expanding the pathways to qualify as an ‘accredited investor’ beyond wealth tests, this bill modernizes the outdated definition that has inappropriately sidelined sophisticated-but-not-wealthy individuals from high-growth asset classes historically reserved for the wealthiest individuals.”
The full House is also set to vote on the Accredited Investor Definition Review Act, H.R. 1579, this week. This bill aims to broaden the accredited investor definition to include individuals holding certain designations, certifications, and credentials.
The proposed H.R. 2797 legislation seeks to amend the existing definition of an accredited investor, which currently relies solely on financial criteria. It proposes the implementation of an exam that would allow individuals, regardless of significant wealth, to demonstrate their knowledge and competency in investment matters. Successfully passing the exam would grant them accredited investor status, granting access to high-growth investments and asset classes typically reserved for the wealthy.
Supporters of the legislation argue that the current accredited investor definition restricts investment opportunities solely to affluent individuals, excluding many knowledgeable individuals with extensive understanding of financial markets and investments. The proposed certification exam system aims to provide opportunities for competent investors who may not possess significant financial resources, thus fostering a more inclusive and diverse investment environment.
However, critics express concerns about potential risks for investors, particularly those lacking substantial financial expertise. They call for stringent standards and regulation of the exam to ensure that only genuinely competent investors are granted accredited investor status.
The next step involves the passage of the bills to the Senate for consideration and voting. If enacted, the legislation could bring significant changes to the process of certifying accredited investors in the United States, expanding opportunities for experienced investors irrespective of their financial wealth and facilitating broader access to high-yield assets and investments.
It will be intriguing to observe further developments in this field and evaluate the impact of these proposals on the investment community and the U.S. financial markets.
