The U.S. Securities and Exchange Commission on Wednesday proposed to alter the requirements for an "accredited investor" to include qualifications beyond individual net worth or annual income.
The regulations require an individual to be an accredited investor before they can invest in private securities, hedge funds, or equity funds.
The SEC voted 3-2 in favor of a proposal to include relevant professional knowledge, experience, or certifications as valid qualifications to become an accredited investor under the agency's rules.
Existing rules require individuals to have a net worth of $1 million or an annual income above $200,000 to qualify for the tag.
"The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only on a person's income or net worth," Jay Clayton, the agency's chairman, said in a statement.
"Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication."
The new rule, if implemented, would increase the possibility for companies to raise funds without going public to be able to reach out to a wider market.
Democrats And Republicans Differ
The votes in favor and against the scope were divided across party lines, the Wall Street Journal noted. While Republican-appointed commissioners were in favor of individual choice, Democratic appointees argued for investor protection.
"The failure to update these thresholds may be less about providing American investors access to lucrative private markets, and more about providing private markets access to potentially vulnerable American investors," Allison Lee, a Democratic-appointed SEC commissioner told the Journal.
"Once they cross the threshold, there are no limits on the amount that can be gambled and lost."