(Article from Registered Funds Regulatory Update, April 2026)
For more information, please visit the Registered Funds Resource Center.
On January 7, 2026, the SEC proposed amendments to existing rules under the 1940 Act and Advisers Act that would update the definition for registered investment companies, BDCs, and investment advisers to qualify as “small entities” for purposes of the Regulatory Flexibility Act (RFA). Enacted by Congress in 1980, the RFA was intended to minimize the significant economic impact of regulation on small entities and reduce undue burdens. Its primary purpose is to ensure regulations fit the scale of the regulated entity, thereby preventing a “one-size-fits-all” approach to rulemaking that can result in disproportionate compliance costs. If adopted, the proposal would substantially increase the current asset-based thresholds used to determine small entity status and would subject those thresholds to inflation adjustments.
Rule 0-10 under the 1940 Act determines small entity status by reference to the aggregated net assets of all investment companies in the same group of related investment companies, while Rule 0-7 under the Advisers Act determines adviser small entity status by reference to AUM, total assets, and relevant control relationships. Because both rules were adopted in 1982 and last updated in 1998, the SEC has proposed amendments to modernize the thresholds in light of substantial growth in AUM and net assets and to better reflect the entities it now considers “small.”
Under the proposed amendments, Rule 0-10 would (i) increase the net asset threshold for investment companies from $50 million to $10 billion, and (ii) for purposes of aggregating net assets of related funds, refer to a “family of investment companies” (as that term is used in Item B.5 of Form N-CEN) rather than to a “group of related investment companies” as used in the current rule. Proposed amendments to Rule 0-7 would increase the AUM threshold for which an investment adviser is considered a “small entity” from $25 million to $1 billion and make conforming changes to the control relationship thresholds, including related amendments and clarifying changes to Form ADV. The proposal would also provide for inflation adjustments to the asset thresholds by order every 10 years. Importantly, this change in definition would not impact the asset threshold that triggers SEC registration as an investment adviser. The SEC also requested comment on whether to amend the total assets threshold for determining small entity status.
In addition, the SEC published a list of rules that it intends to review and requested public comment on “whether the rules should be continued without change, or should be amended or rescinded to minimize any significant economic impact of the rules upon a substantial number of small entities.” The rules set for review include:
- Changes to Exchange Act Registration Requirements to Implement Title V and Title VI of the JOBS Act;
- Form ADV and Investment Advisers Act Rules;
- Investment Company Reporting Modernization;
- Investment Company Swing Pricing;
- Investment Company Liquidity Risk Management Programs; and
- Exemptions To Facilitate Intrastate and Regional Securities Offerings.
Comments on the proposed amendments were due March 13, 2026.
Amendments to the “Small Business” and “Small Organization” Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act, SEC Release No. IA-6935; File No. S7-2026-01 (Jan. 7, 2026), available at: https://www.sec.gov/files/rules/proposed/2026/ia-6935.pdf.