The accredited investor definition determines who can participate in non-SEC registered private securities offerings; the overarching intention is to prevent less “sophisticated” investors from financial fraud and to protect them when making private investments that, for example, are more opaque and require greater due diligence. On an individual level, the income and net worth threshold is currently $200,000 and $1 million respectively.

The Fair Investment Opportunities for Professional Experts Act, which incorporates the addition of a knowledge- and education-based category of accredited investors, was introduced in April 2015 and passed on February 1 this year on a vote of 347-8.

The proposed revisions require the SEC to adjust the above-mentioned dollar thresholds for inflation every five years - based on the Consumer Price Index - and expand the list of accredited investors to include the following individuals :

- Brokers or investment advisors licensed or registered with the SEC, FINRA or an equivalent self-regulatory organization, or the securities division of a state/equivalent state division responsible for licensing or registration of individuals in connection with securities activities; and

- Individuals the SEC determine to have professional knowledge related to an investment and whose education or job experience is verified by FINRA or another SRO.

“The Hedge Fund Association…will continue to support reasonable changes by Congress and the SEC to the accredited investor definition, and the private offering exemptions in general, provided such changes enhance investor protection and promote capital formation without further limiting investor access to alternative investment funds,” said Mitch Ackles, president at the HFA.

The HFA “cautions against more radical changes to financial thresholds that would narrow the universe of investors,” said Jim Van Horn of the HFA's regulatory affairs committee and a partner at Hirschler Fleischer.

Updating the accredited investor definition has been an “important goal” for Congress and the SEC since the passage of The Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the organization said. A report released by the SEC in December 2015 included 11 possible revisions.

In July 2013 the SEC adopted a new rule to implement a JOBS Act requirement which involved lifting the ban on general solicitation or general advertising for certain private securities offerings. While many welcomed the move for reasons including job creation and capital formation, critics argued that it may expose small and/or inexperienced investors to fraud or risk.

The HFA is an international non-profit organization comprised of hedge funds, funds of hedge funds, family offices, high net worth individuals, financial advisors and service providers.