SEC updates small-entity definitions for advisers and funds

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SEC updates small-entity rules

Highlights

SEC adopted amendments raising asset-based thresholds for small entity status among investment companies, advisers, and business development companies for the first time in nearly 30 years.
The updated rules revise fund asset aggregation, remove total-assets threshold for investment advisers, and introduce decennial inflation adjustments to thresholds.
Redefined small-entity criteria will affect SEC regulatory flexibility analyses and future compliance cost assessments, particularly benefiting smaller U.S. asset managers.

Rule changes reshape small-entity thresholds

As reported by SEC, citing the Securities and Exchange Commission, the adopted amendments update the rules used to determine which registered investment companies, investment advisers, and business development companies qualify as small entities under the Regulatory Flexibility Act.

The agency says the revisions recognize substantial expansion in the asset management industry since the original asset-based thresholds were set. SEC Chairman Paul S. Atkins says the update, the first in nearly 30 years, is designed to modernize the rulebook and better identify firms that are small relative to today's market.

The amendments increase the asset-based thresholds for investment companies, investment advisers, and business development companies. They also revise how assets of related funds are aggregated, remove the total-assets threshold for investment advisers, and provide for inflation adjustments to the asset-based thresholds by order every 10 years.

Regulatory impact on the asset management sector

The Regulatory Flexibility Act is intended in part to improve the effectiveness and efficiency of regulation by encouraging consideration of alternative approaches that reduce the economic impact of federal rules on small entities. The SEC says more accurate definitions should help its regulatory flexibility analyses capture a more meaningful group of market participants.

For the asset management sector in the U.S., the revised framework is expected to influence how the commission assesses compliance costs when developing future rules. By aligning the definitions more closely with current market conditions, the changes are aimed at tailoring regulatory obligations more effectively for smaller firms and funds.

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