The powerful US financial sector regulator could redefine thresholds for those who are dubbed an "accredited investor", as the industry is due for an update, a network has argued.

The Securities and Exchange Commission, the US regulator, could re-define the income and net worth threshold for what constitutes an "accredited investor," which is currently set at $200,000 and $1 million respectively.

As stated in a report today by the peer group network COOConnect, the Dodd-Frank Act requires the SEC to re-examine the definition of  what constitutes an “accredited investor” every four years. The last time it made such a review was in 2010, when COOConnect said it decided to exclude the value of a person’s primary residence from the calculation of their net worth.

There are some parallels with practice in other nations; in the UK, for example, the definition of what is a "sophisticated" investor can lead to confusion, particularly because the term can be used to determine how much, or how little, regulatory protection is put in place on complex financial products.

“It is quite possible the SEC could increase the threshold from the $200,000 per year as applied to income to up to $500,000, and the $1 million net worth threshold to more than $2.5 million,” Steven Nadel, a partner at the New York-based law firm Seward & Kissel told the website.

“While this is unlikely to impact large-scale fund managers which solicit institutional investors writing substantial tickets, it could have a significant effect on smaller managers who are setting up and are devoid of seed capital and therefore reliant on cash inflows from friends and family,” Nadel said.

Meanwhile, the US authority could also require prospective investors to demonstrate a “degree of financial sophistication and knowledge” before buying units in a private fund - a stance already taken by the UK’s Financial Conduct Authority, COOConnect said.

Last July the SEC adopted a new rule to implement a JOBS Act requirement which involves lifting the ban on general solicitation or general advertising for certain private securities offerings.

While many welcomed the move, critics argued that lifting the ban will expose small and/or inexperienced investors to fraud as a result of loosened investment protections.