SEC Proposes Amendments to the Small Entity Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) is a federal law (5 U.S.C. §§ 601–612) that requires agencies like the SEC to think specifically about how their regulations affect “small entities” (small businesses, small governments, and certain small nonprofits). When an agency writes a rule that could have a “significant economic impact on a substantial number of small entities,” it must:

• Analyze the expected impact on small entities; and
• Consider less burdensome alternatives (such as exemptions, different compliance timetables, or simplified requirements).

This matters because, if an investment adviser, fund, or other firm qualifies as a “small entity” under the SEC’s RFA rules, the SEC is legally required to evaluate how its rulemakings will affect that firm and to look for ways to reduce unnecessary regulatory burden on it.

Under SEC rules, being designated a “small entity” for RFA purposes mainly affects how the SEC must treat you when it writes or updates regulations, not your day‑to‑day obligations directly.

In practice, if a registered investment company, business development company (BDC), or investment adviser meets the SEC’s “small entity” thresholds (set in rules such as Investment Company Act rule 0‑10 and Advisers Act rule 0‑7), then:

• The SEC must assess and describe in its rulemaking releases how new or amended rules would economically affect such small entities; and
• It must consider less burdensome alternatives (for example, streamlined requirements, phased or delayed compliance dates, or exemptions) that could reduce impact on these small firms.

Some SEC programs and fee schedules also use “small entity” status as a criterion when tailoring regulatory expectations or costs, but the core effect is on how new rules are analyzed and potentially adjusted for these firms.

Business development companies (BDCs) are a special type of publicly traded investment vehicle that mainly invest in small and mid‑size U.S. companies (often privately held or thinly traded) to help them grow or recover financially.

Key differences from other investment companies:

• Legal status: BDCs are a category of closed‑end company that elects to be regulated as a BDC under the Investment Company Act of 1940. They are not registered as traditional investment companies, but they are still subject to many of the Act’s investor‑protection provisions (governance, compliance, conflict‑of‑interest rules).
• Investment focus: BDCs must invest a large portion of their assets in small and mid‑size U.S. businesses, including private or thinly traded companies, while many mutual funds and other closed‑end funds hold more liquid, publicly traded securities.
• Access for retail investors: Unlike most private equity or venture capital funds, BDCs trade on public exchanges, so ordinary investors can buy and sell their shares like stocks.

Publicly available secondary reports on the SEC’s Jan. 7, 2026 press release state only that the SEC proposed to amend the rules that define which registered investment companies, investment advisers, and BDCs qualify as “small entities” for RFA purposes.

Because direct automated access to the SEC’s release and any accompanying fact sheet is blocked, there is insufficient reliable detail to describe the specific numerical thresholds or definitional changes the SEC proposed (for example, exact asset‑size cut‑offs or other criteria).

The full text of the SEC’s proposal and supporting analyses will appear in two main places:

1. SEC rulemaking page and press release

• The proposal release (often a PDF) and any fact sheet or economic/small‑entity analysis are linked from the SEC’s rulemaking/press release page for this action:
  • SEC press release: “SEC Proposes Amendments to the Small Entity Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act.”

2. Federal Register

• After the proposal is officially published, the complete text (including the economic and Regulatory Flexibility Act analysis) will be in the Federal Register, accessible via federalregister.gov by searching for the proposal title or its SEC release number once available.

For SEC rules, the typical post‑proposal timeline is:

• Proposal publication: The SEC posts a proposing release on its website and it is then published in the Federal Register.
• Comment period: The SEC sets a public comment period, commonly 30–60 days from Federal Register publication (or sometimes “the later of 30 days after Federal Register publication or 60 days after posting on the SEC website”). Complex or controversial rules may have longer or reopened comment periods.
• Review and adoption: After the comment period closes, SEC staff review comments, may revise the proposal, and then the Commission votes on a final rule. There is no fixed statutory deadline; adoption can take months or longer depending on the issue and volume of comments.
• Effective and compliance dates: Final rules specify when they become legally effective (often 30–60 days after publication) and may provide longer “compliance dates,” sometimes staggered or extended for smaller entities.

Changing the definitions of “small entity” can affect which advisers and funds the SEC must treat as “small” under the RFA, which in turn can change their regulatory cost profile over time.

Possible practical effects:

• If thresholds are raised (so that more firms qualify as “small”): more advisers and funds would be covered by the SEC’s small‑entity analysis, making it more likely that future rules include tailored requirements, phased compliance, or other accommodations that may reduce costs for those firms.
• If thresholds are narrowed or tightened: fewer firms would qualify as “small entities,” so more advisers and funds could face the full weight of new requirements without small‑entity‑specific relief, potentially increasing relative compliance burdens.

The exact impact on costs or obligations for any given firm will depend on how the SEC ultimately adjusts the quantitative tests (such as asset size or other metrics) and how it then uses that “small entity” category when crafting and phasing in new rules.