SEC Commissioners offered recommendations to improve access to capital for underrepresented founders and investors.
At a meeting of the Small Business Capital Formation Advisory Committee, Commissioner Allison Herren Lee emphasized the difficulty associated with developing concrete solutions to improve access to capital for underrepresented and marginalized communities. Ms. Lee said that the SEC should evaluate how it is addressing the impact of its regulations on such communities, including assessing (i) whether there are disproportionate costs to such communities from a given policy and (ii) how to determine if such communities are benefiting from SEC regulations.
Ms. Lee recommended that the SEC should (i) incorporate its Office of Minority and Women Inclusion into the rulemaking process to ensure that the SEC is using all the relevant expertise at its disposal and (ii) include in its economic analysis an evaluation of the costs and benefits of its regulations on varying segments of the population. Ms. Lee said the SEC should include in its economic analysis an evaluation of the distributional consequences of its policymaking. She suggested that the Division of Economic and Risk Analysis and the Office of the General Counsel should (i) revisit their regulatory guidance on economic analysis and (ii) consider modifications, such as enhancing the identification of the benefits of the SEC's regulation that are difficult to quantify.
Commissioner Hester M. Peirce recommended that the SEC (i) provide greater flexibility in assessing who qualifies as an accredited investor, (ii) create a framework for finders and (iii) develop a streamlined exemption for micro-offerings. Ms. Peirce also stated that a qualifying venture capital fund exemption may be more impactful if such funds were permitted to have over $10 million in assets, which is not currently allowed.
Simply put, if the SEC adopts rules to protect investors by imposing greater requirements on small businesses seeking to raise money, small businesses are going to find it more difficult to raise money. There is simply a trade-off, as Commissioner Peirce recognizes, between prioritizing investor protection and the ease of raising capital. The regulators cannot prioritize both.
That is not to say that making it easier to raise capital should be the higher priority. The Commissioners can reasonably decide that they think it better to prioritize investor protection. But they must carefully weigh the costs and the benefits. It makes little sense to impose greater restrictions on private placements and then wonder why small businesses find it harder to raise money.
- SEC Press Release: Increasing Opportunities for Underrepresented Founders and Investors on the Agenda for the SEC Small Business Capital Formation Advisory Committee Meeting on April 30
- SEC Statement, Gary Gensler: Prepared Remarks at SEC Small Business Capital Formation Advisory Committee Meeting
- SEC Statement, Allison Herren Lee: Remarks to the Small Business Capital Formation Advisory Committee
- SEC Statement, Hester Peirce: Remarks at Meeting of SEC Small Business Capital Formation Advisory Committee
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