Accredited Investor

An accredited investor is a person or entity that meets the qualification criteria established by the SEC under Rule 501 of Regulation A, permitting participation in private securities offerings that are exempt from registration under the Securities Act of 1933. The concept reflects a regulatory presumption that investors above certain wealth or sophistication thresholds are capable of evaluating private investment risk without the protections of a full public offering prospectus and SEC review.

Accredited investor status is the gateway to Regulation D Rule 506(c) security token offerings, which require that all purchasers be accredited investors, and substantially simplifies Rule 506(b) offerings where up to 35 non-accredited sophisticated investors may also participate.

US SEC Definition (Rule 501)

The SEC’s accredited investor definition was most recently updated in August 2020 to add professional credential categories alongside the traditional financial thresholds.

Individual natural persons qualify if they meet any of the following:

• Income test: Individual income exceeding $200,000 in each of the two most recent years, with a reasonable expectation of the same in the current year; or joint income with a spouse exceeding $300,000 in each of the two most recent years.
• Net worth test: Net worth exceeding $1,000,000, individually or jointly with a spouse, excluding the value of the primary residence. (The primary residence exclusion was added by the Dodd-Frank Act to prevent inflated home valuations from qualifying unsophisticated investors.)
• Professional credentials: Holders of FINRA Series 7, 65, or 82 licences in good standing qualify regardless of income or net worth — recognising financial market knowledge as a proxy for investment sophistication.
• Knowledgeable employees of a private fund (including portfolio managers, executive officers, trustees, and similar persons) qualify for investments in that fund.

Entities qualify if they meet any of the following:

• Any entity with total assets exceeding $5 million, provided it was not formed for the specific purpose of acquiring the securities being offered.
• Any entity in which all equity owners are accredited investors.
• “Family offices” with at least $5 million in assets under management.
• Certain institutional investors: registered investment companies, banks, insurance companies, state and federal government-sponsored enterprises, and certain employee benefit plans.

Verification Requirements

Under Rule 506(c), issuers relying on the accredited investor exemption must take reasonable steps to verify each purchaser’s status — self-certification is insufficient. The SEC’s 2013 guidance provides a non-exclusive safe harbour for verification methods including:

• Reviewing two most recent years’ tax returns (Form W-2, Form 1040, Schedule K-1) to verify income
• Reviewing bank, brokerage, or other account statements, and credit reports to verify net worth (excluding primary residence)
• Obtaining written confirmation from a registered broker-dealer, investment adviser, attorney, or CPA that the person is accredited
• Using third-party verification services (such as Parallel Markets, Verify Investor, or Accredited Investor) that conduct and document verification to the SEC standard

Third-party verification services have become standard practice in security token platforms, integrating KYC and accredited investor verification into a single onboarding workflow.

Equivalent Concepts in Other Jurisdictions

European Union — Qualified Investor: The EU Prospectus Regulation and MiFID II use the concept of qualified investors — broadly equivalent to institutional investors and high-net-worth individuals — to distinguish public from private offerings. MiFID II additionally distinguishes professional clients (institutional investors, large companies, experienced individuals who opt up) from retail clients, with retail clients receiving the highest level of investor protection and least access to complex investment products.

Switzerland: FINMA’s collective investment scheme rules define qualified investors including high-net-worth individuals (CHF 500,000 net worth or 2 million minimum investment), professional investors, and institutional investors.

Hong Kong — Professional Investor: The Securities and Futures Ordinance defines professional investors for the purpose of exemptions from certain regulatory requirements. Individual professional investors must meet a portfolio threshold of HKD 8 million (approximately USD 1 million) in investable assets, assessed and documented at onboarding. Corporations with HKD 8 million in investable assets or HKD 40 million total assets also qualify. The distinction determines access to unlicensed investment products and tailored solicitation exemptions.

Singapore — Accredited Investor: MAS defines accredited investors as individuals with net personal assets exceeding SGD 2 million (or net financial assets exceeding SGD 1 million), or income in the preceding 12 months exceeding SGD 300,000.

Related entries: Regulation D, Regulation A+, Security Token Offering (STO), KYC/AML in Tokenization

Primary source: SEC Accredited Investor Definition