Requirements, KYC Check and More: All You Need to Know About an Accredited Investor

Learn about accredited investors and how to work with them

What is it so special about accredited investors? The answer is — privileges over the normal buyers. Accredited investors are usually wealthy and experienced individuals who have access to some hidden deals such as limited edition tokens or unregistered securities. Due to this extra power, businesses undermine the chance of accredited investors being tricked by frauds and loosen on safety precautions.

Investors have now gone digital and can invest even in STO. So, here is an overview on how to become an accredited investor, its legal attachments and KYC routine to pass before committing to any transactions.

What is an accredited investor

The term originates from an English ‘accredited’, meaning someone with special power, authority or recognized standards.

By the Securities and Exchange Commission (SEC) definition, an accredited investor is a person or a business that is allowed to purchase and deal with securities without the need to register with financial authorities. SEC accredited investors have the power to invest in private placements and equity, hedge funds, equity crowdfunding and venture capital — unavailable for public.

The reason why accredited investors are so attractive for businesses is that only they can be offered unregistered securities. In essence, the purpose of an accredited investor is to help finance by investing in a venture. Skipping the requirement to register the company with financial authorities saves a lot of money for filing. The accredited investor and company have a great opportunity to make a hefty profit but the accredited investor also needs to understand and be able to cope with possible financial losses.

Although in here we mainly look at the US version of accredited investor requirements, the status exists in many other countries. Sometimes they are also called qualified.

The criteria to become an accredited investor

The regulations vary across jurisdictions, but the crucial points that define accredited investors stay along the same line of reason. Here, is the most common definition of accredited investor and it comes from the US SEC.

To suit an accredited investor requirements you must confirm your wealth. These requirements were imposed to make sure that the party interested in unregistered securities estimates the risks involved and is prepared to lose the investment.

  • over $200,000 annual income for the past 2 years (or $300,000 joint with a spouse) with the same income expected for the current year;
  • over $1 million net worth individually or jointly with the spouse, disregarding the primary residence.

Other than wealthy individuals, SEC accredited investors can also be certain trusts and certain.

  • a trust, with over $5 million total assets, formed for a different purpose other than specifically to purchase the subject securities;
  • an entity where all of the equity owners are accredited investors.

How to perform an accredited investor KYC and why

The due diligence of an accredited investor is somewhat a misconception because, there is no test and no certificate issued to qualify one as an accredited investor from a non accredited investor.

Since September of 2013, the SEC has made it a requirement that anyone selling securities to an accredited investor has to take certain reasonable steps to verify their status — a crucial step to keep non accredited investors from participating in investments they are not financially ready for.

The steps to accredited investor verification may vary across jurisdictions but the foundation stays roughly the same. The standard KYC procedure will require:

  1. First, the investor has to submit some personal data (name, address and an email).
  2. Then, to verify the ownership of assets, the issuer, or the seller will provide a questionnaire that will include a balance sheet and supporting documents such as financial statements. Investors with qualifications based on their annual income can provide W2 forms, tax returns, letters from certified personal accountants, investment brokers, advisors and tax attorneys.

Here you can find a simple guide that can be applied to verification of any type of investor.

Businesses have to make sure that accredited investors are eligible, safe and trusted by evaluating their position and the risks that come with unregistered deals. By implementing the right KYC into the routine companies invest in their own safety, fight the frauds off their grounds and foster customer loyalty.

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