SEC Updates Small Entity Definitions for Investment Firms
The SEC adopted rule amendments redefining which investment companies and advisers qualify as small entities under the Regulatory Flexibility Act.
The Securities and Exchange Commission has adopted amendments updating the definitions used to determine which registered investment companies, investment advisers, and business development companies qualify as small entities under the Regulatory Flexibility Act.
The Regulatory Flexibility Act requires federal agencies to assess the impact of their rules on small entities before finalizing regulations. By revising the thresholds and criteria that govern small-entity status, the SEC is adjusting which firms receive special consideration during that review process — a change with potential implications for how future rulemakings affect smaller players in the investment industry.
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Business development companies, which provide financing to small and mid-sized businesses, are among the categories of registered entities affected by the updated definitions. Investment advisers registered with the commission are also subject to the revised standards, meaning some firms may shift in or out of the small-entity classification depending on how the new criteria are applied.
The amendments reflect a broader regulatory effort to keep pace with the evolution of the asset management industry, where firm sizes and business models have changed considerably since earlier definitional standards were established. Reclassifying entities can influence the scope and cost of compliance burdens assigned to smaller market participants under subsequent SEC rulemaking.
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