editorial
SEC Small Business Forum Report Reveals Policy Recommendations for Regulatory Improvements
The Securities and Exchange Commission (SEC) recently published the report from its annual Small Business Forum, which took place earlier this year. While the Forum has been providing recommendations to the Commission for over 40 years, few of these suggestions have actually resulted in policy changes or regulatory improvements.
Led by the SEC’s Office of the Advocate for Small Business Capital Formation, the meeting aimed to support smaller firms that are often overlooked by the regulator. However, the SEC has been criticized for prioritizing its own short-term goals and political ambitions over the Advocate’s mission.
The policy recommendations that emerged from the Forum in April include:
1. Expand the Accredited Investor Definition to promote diversity among startup investors and entrepreneurs.
2. Include additional measures of sophistication in the Accredited Investor definition.
3. Harmonize annual reporting requirements for issuers using exempt pathways, such as Regulation Crowdfunding and Regulation A.
4. Define the Accredited Investor as any person who invests no more than 10% of their annual income or net assets.
5. Avoid making revisions to the Accredited Investor definition that would make it more difficult to qualify based on wealth thresholds.
6. Ensure equitable access to capital for underrepresented founders and investors by improving capital raising rules.
7. Collaborate with market experts to establish a regulatory framework for finders, including an exemption from broker-dealer registration, to facilitate small business capital formation.
8. Support entrepreneurs, particularly underrepresented founders, who lack technical assistance in accessing capital from investors.
9. Improve the exempt offering framework to increase diversity and reduce concentration, ensuring that access to capital is not limited to wealthy individuals known to the company.
10. Create a new private fund exemption for states to foster intrastate and regional funds that focus on community-based investing and are open to non-accredited investors.
11. Support underrepresented emerging fund managers, specifically minorities and women, in building funds that diversify capital allocation and challenge pattern-matching trends.
12. Allow non-accredited investors to participate in venture capital funds.
13. Increase the number of investors allowed in 3(c)(1) funds, including traditional and Qualified Venture Capital Funds, to promote diversity among startup investors and entrepreneurs.
14. Incentivize investors to support startup founders.
15. Revise Exchange Act Section 12(g) to increase the number of non-accredited investor holders and the asset threshold.
16. Only consider changes that increase smaller public company requirements if there is a specific problem identified, ensuring a stable and predictable regulatory environment for these companies.
17. Facilitate the creation of venture markets that provide transparent and regulated trading for smaller companies’ stocks.
18. Revise the proposed 2022 Climate-Related Disclosure rules to exempt smaller reporting companies, non-accelerated filers, emerging growth companies, and other midsized companies or scale and delay the rules for these issuers.
19. Improve public trading for small companies by requiring more disclosure about short selling, institutional holders, insider and affiliate holdings and transactions, paid stock promotions, and information about the security from transfer agents.
However, despite the promising proposals, there is little optimism for change. The SEC’s inaction on crucial issues, such as crafting rules for Finders, and its intention to exclude more individuals from the Definition of an Accredited Investor, indicate a lack of support for small businesses. Critics have described the current Commission, led by Chair Gary Gensler, as the Anti-Capital Formation Commission.
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