In the US alone, around 13 million entities are considered accredited investors who can indulge in huge investments. They financially support startups, early-stage companies, hedge funds, and progressive businesses. Due to their worth and legal status, enterprises prefer getting an accredited investor on board. Furthermore, they ensure financial backup whilst accelerating growth.
Integrating Know Your Investor (KYI) solutions help businesses make accurate decisions and pitch the right entities. With services such as background checks, financial insights, previous funding, risk levels analysis, and others, there will be fewer chances of falling prey to imposters.
This article further explains who are accredited entities, their worth, and how investor verification services help identify them from a pool of funders.
What are Accredited Investors and their Importance for Enterprises?
Accredited investors can also be angel lenders that massively fund promising startups and offer financial support to other types of businesses. Given their nature, investments fall under the radar of the Securities and Exchange Commission (SEC)’s legal obligations. Therefore, it is obligatory for company owners to verify investor before getting them on board.
The accredited investor term concept originated from the Securities Act of 1933. It was put forth concerning the increase in investment scams. This know your investor act outlined several requirements for entities to qualify as potential lenders. According to Rule 506(c), only certain individuals with a fixed income can invest in venture capital, private assets, hedge funds, and angel investments.
Accredited Investors and Legal Qualification Requirements
Accredited investors can sometimes be fraudsters impersonating potential lenders with bogus investment histories. In order to protect funders and businesses from fraud risks, SEC has put forth certain know your investor requirements. As per them, accredited entities should have enough net worth to bear the loss in case any investment decision goes wrong. Similarly, businesses should also establish effective KYI verification checks which will ensure they do not fall prey to investment scams.
Know your investor solutions further helps businesses check the following criteria and identify potential accredited lenders:
Professional Qualifications
Business owners can not just onboard any individuals claiming to have high net worth and promising financial support. However, they need to run thorough authentication checks and ensure they are not signing a contract with some fraudsters. According to the SEC, the professional qualification of any investor directly implies their financial standing with Series 65, 7, or 82 licenses.
Considering the professional criteria, general partners, owners, directors, or executive officers qualify as accredited lenders. With access to global records, online investor verification services help businesses identify these entities more efficiently and accurately.
Financial Qualifications
Financial criteria for qualifying as an accredited investor involve the following:
- Individual or joint net worth with spouse is more than $1 million inclusive of all assets in possession other than primary residence
- Income for the last two years exceeds $200,000 with a reasonable chance of the same annual earning for the ongoing period.
Income identification and funds of sources validation is yet another challenge that faces businesses whilst they onboard lenders. Creating fake account statements, hiding money trails, and making fake documents with counterfeit investment details is easier for criminals due to the availability of forgery software. However, with robust know your investor services in place, business owners can check financial histories in real time and without discrepancies.
KYI Verification – A Breakdown of Steps Involved in Authentication
The process involved in qualifying accredited lenders is simple, swift, and user-friendly. This is because KYI services use AI-powered algorithms to streamline investor onboarding. With automated information collection, document extraction, details analysis, and real-time selfie-based authentication, there remains less space for fraudulent attempts.
The steps deployed by know your investor services further involved the following:
- Data entry with complete details like name, address, occupation, and others into an online form.
- Users are then asked for a government-issued ID and business documents as supporting evidence for their previously entered information.
- After submission, the Money Laundering Reporting Officer (MLRO), using OCR/ICR/ML tools, runs authenticity scans on documents and validates their originality.
- The MLRO then verify investors by cross-matching their profiles against AML databases, sanctions, and other global watchlists.
- The investor verification service providers then record results in the back office, display them on users’ screens, and store them in the company’s database by using an API.
What’s Next?
Where accredited lenders can be of great benefit to businesses, risk-possessed entities bring consequences otherwise. Fraudsters often leave businesses with criminal proceedings, monetary instability, compliance costs, and other such consequences. Hence, integrating know your investor solutions enable companies to reap in-depth knowledge regarding the individuals they pitch. Furthermore, KYI checks to help them choose potential and experienced financial professionals. Hence, investor verification services are what businesses need to thrive in the competitive investment market.
