SEC Updates Small-Entity Definitions for Investment Firms Under Regulatory Flexibility Act

The U.S. Securities and Exchange Commission (SEC) has adopted amendments updating the definitions used to identify small registered investment companies, investment advisers and business development companies under the Regulatory Flexibility Act (RFA). The changes are intended to ensure the agency’s regulatory analyses better reflect the current size and structure of the asset management industry. The amendments raise the asset-based thresholds for determining whether investment companies, investment advisers and business development companies qualify as small entities. They also revise how assets held by related funds are aggregated for the purpose of applying the definitions and remove the total-assets threshold for investment advisers. The SEC said the updates are designed to help minimize the economic impact of its rules on smaller market participants. The RFA requires federal agencies to consider the effects of rulemaking on small entities and, where appropriate, assess alternative regulatory approaches that could reduce significant economic impacts. The amendments also establish inflation adjustments to the asset-based thresholds by agency order every 10 years. SEC Chairman Paul S. Atkins said the definitions had not been updated in nearly 30 years and that the changes would help the Commission account more accurately for entities that are small relative to today’s market. The adopting release has been published on the SEC’s website and is set to appear in the Federal Register.