SEBI is Contemplating the Accredited Investor

SEBI, or Securities and Exchange Board of India, is considering the addition of the accredited investor to the regulations. The agency is reaching out for public comment in order to get a good understanding of how industry professionals and investors feel about the concept of adding an accredited investor definition to Indian securities law. The accredited investor definition has had great success throughout the world. Many international accredited investors boost their respective countries’ economies, so it is no wonder that India is considering adding this definition to its securities regulations.

 Generally speaking, accredited investors are considered to be sufficiently equipped with the ability to invest in potentially risky private funds. They prove this either through possessing a high net worth or income or showing a certain level of financial sophistication. The aim here is to prevent someone who does not have the skills to assess risks in a fund or carry the burden of the potential loss. Regulatory bodies worldwide seek these types of sophisticated investor protections to balance, including less regulation in specific offerings. For example, in the United States, accredited investors are necessary when conducting a Rule 506(c) offering.

Many nations have their own definitions of what an accredited investor is, so it will be interesting to see what standards India adopts. For instance, Canada has about the same requirements as the United States. In contrast, other countries have varying standards, some that are much higher than others.

To compare those differing requirements, here is a direct comparison of the United States net worth method to Australia’s net assets requirement:

• The United States - An individual whose net worth exceeds $1 million USD, excluding the value of the primary residence.

• Australia - A person that has net assets of at least A$2.5 million (approximately 1,946,525.00 USD)

So as you can see, both of these reasonably similar western countries have drastically different requirements for their respective “sophisticated investor” definitions.

In countries outside of the United States, their version of “accredited investors” are called something else. For example, in Israel, they are called Classified Investors, and in Australia, they have two designations - Sophisticated Investor and Professional Investor. That is why it is especially important to know who you are talking about as the exact wording of the investor type and which countries’ standards you are discussing the matter. In the United States, many financial industry professionals through the words sophisticated investor and accredited investor around freely, which we discussed at length in a previous blog article.

When India introduces its own “accredited investor” category, issuers that would like to find accredited investors in that country should pay close attention to the requirements and the name of the investor type. As it has in the United States, the accredited investor requirements that need to be met might fluctuate depending on how the industry evolves or how the government feels about the current definitions and provisions. We recommend keeping track of more announcements regarding India’s accredited investor announcements by checking our blog. As an accredited investor verification service, we are always on the lookout for any news that has to do with accredited investors domestically and internationally. We, of course, cover other subjects within the FinTech bubble.