Senators Britt and Kim introduce the ‘Small Entity Update Act’ to compel the SEC to modernize its outdated definition of ‘small entity’ and assess compliance costs.
U.S. Senators Katie Britt (R-Ala.) and Andy Kim (D-N.J.) today unveiled bipartisan legislation, the Small Entity Update Act, designed to update the Security and Exchange Commission’s (SEC) regulatory framework to provide much-needed relief for small businesses and entrepreneurs.
The bill directly addresses an issue rooted in the Regulatory Flexibility Act of 1980, which requires the SEC to assess the impact of its rules on “small entities” and consider less burdensome alternatives if the impact is significant.
However, the current SEC definition of a “small entity” for small investment advisers—those with less than $25 million in assets under management (AUM)—has not been updated in over 25 years.
This threshold is now widely seen as obsolete, particularly since the current threshold for mandatory SEC registration is $100 million AUM. This significant gap means the outdated definition effectively excludes nearly all small investment advisers and small businesses under the SEC’s purview from the intended protections of the Regulatory Flexibility Act.
“Every entrepreneur deserves a fair shot at success, free from outdated and overburdensome red tape,” said Senator Kim. “This bill is a straightforward way we can modernize and stand by our smallest businesses so they can continue to contribute to our local communities and economies.”
Modernizing the Framework
The Small Entity Update Act would require the SEC to:
- Assess the growth of U.S. financial markets and the costs of regulations since the last amendment to the “small entity” definition.
- Issue a rulemaking to adjust the definition consistent with the study’s results.
- Tie the updated threshold to inflation, with required updates every five years, ensuring the definition remains current moving forward.
“Alabama’s small businesses create opportunity, jobs, and economic growth throughout the state,” stated Senator Britt. “My legislation… would ensure these small entities across the state and country are not unduly impacted by onerous regulations so they can continue to play pivotal roles in our economy.”
The legislation has garnered strong support from industry groups, including the Investment Adviser Association (IAA), which thanked the Senators, calling the bill “a critical measure that directs the SEC to modernize its outdated definition of a small business.” The IAA noted that the outdated standard has long allowed the SEC to “bypass meaningful consideration of less burdensome regulatory alternatives.”
The legislation serves as the Senate companion to a bill introduced in the House of Representatives by Congresswoman Ann Wagner (R-Mo.). The bipartisan push aims to ensure that current and future SEC rulemakings do not impose unnecessary or overly burdensome requirements, allowing small businesses to focus on growth and serving their clients.
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