Senate Introduces Bill to Require SEC to Modify Small Entity Definition

The Small Entity Act, a bill that would require the Securities and Exchange Commission to periodically study and update its definition of what constitutes as a small entity for regulatory purposes was introduced in the Senate on Thursday by Senator Katie Britt, R-Alabama. The same legislation passed the House in May 2023 by a vote of 367-8.

If passed, the legislation would require the SEC to issue a study within one year and every five years thereafter on the definition of small entity to Congress. The study must contain a suggested definition that captures a “meaningful number” and suggestions on reducing regulatory burdens on small entities. The report must be accompanied by a rule proposal to update the definition.

Currently, when considering compliance with multiple securities laws, the SEC defines investment advisers with less than $25 million in assets under management as small entities that may not register with the SEC, a threshold initially set in 1983. Advisers can choose to register with the SEC, instead of their respective state, up until they have $100 million in assets, at which point they are required to do so.

The bill also contains a provision that would tie the threshold for a small entity to inflation, to be updated every five years.

The Investment Adviser Association endorsed the bill’s passage in the House and introduction in the Senate in an emailed statement, writing that: “The IAA believes it is critically important that the SEC meaningfully consider the unique challenges of smaller advisory firms and the cumulative impact of policy decisions on their businesses and their ability to serve the investing public.”