On January 7, 2026, the Securities and Exchange Commission (“SEC”) proposed amendments to the rules that define which registered investment companies, investment advisers, and business development companies qualify as small entities for the purposes of the Regulatory Flexibility Act (RFA).[1] The Proposing Release notes that the amendments would increase the asset-based thresholds used in such definitions and would also provide for a mechanism for future periodic inflation adjustments of those asset-based thresholds.
While the RFA does not mandate any specific regulatory outcome, it is intended to ensure that agencies, such as the SEC, consider the economic consequences of their rules on small entities. Generally, when the SEC adopts a new rule, it has often provided small entities with additional time to come into compliance, which is important because small entities frequently do not have the resources to develop tools in-house to comply with certain rules, and instead must contract with third-party vendors. Even when a new SEC rule only requires additional procedures and an entity does not need to hire an third-party service provider, the additional time to come into compliance can still be helpful.
Overview
Proposed Amendments to Rule 0-10 of the Investment Company Act of 1940, as amended (the “1940 Act”)
- Raising the Net Asset Threshold
- The proposed amendments would amend Rule 0-10 of the 1940 Act to increase the small entity net asset threshold for investment companies from $50 million to $10 billion.
- The Proposing Release notes that this change would improve the usefulness of RFA analyses by more closely reflecting the population of funds that does not have the same competitive advantages as larger fund groups and would also more closely reflect the population of funds that does not have the same negotiating power as larger fund groups when retaining service providers to perform compliance and operational functions.
- Group Definitions Amendments
- The proposed amendments would amend Rule 0-10 of the 1940 Act to replace the term “group of related investment companies” with “family of investment companies” as the term is used in Item B.5 of Form N-CEN.
- “Family of Investment Companies” means, except for insurance company separate accounts, any two or more registered investment companies that: (1) share the same investment adviser or principal underwriter; and (2) hold themselves out to investors as related companies for purposes of investment and investor services.
Proposed Amendments to Rule 0-7 of the Investment Advisers Act of 1940 (the “Advisers Act”)
- The Regulatory Assets Under Management (“RAUM”) Threshold
- The proposed amendments would amend Rule 0-7 of the Advisers Act to increase the small entity RAUM threshold from $25 million to $1 billion.
- The Control Relationship Threshold
- The proposed amendments would amend the Control Relationship Threshold in accordance with the changes to the RAUM Threshold in Rule 0-7 of the Advisers Act, from $25 million to $1 billion.
- Form ADV Amendments
- The proposed amendments would amend certain Form ADV instructions to update the definition of a small adviser as noted above.
Periodic Future Adjustments
- The proposed amendments would also provide for future inflation adjustments to the asset thresholds every 10 years for both Rule 0-7 of the Advisers Act and Rule 0-10 of the 1940 Act.
The Proposing Release requests comments on various questions the SEC has laid out with respect to these proposals, as well as whether the SEC should also amend the total assets threshold in Rule 0-7 of the Advisers Act, which is not part of the current proposed amendments.
[1] Release IC-35864, amendments to the “Small Business” and “Small Organization” Definitions for Investment Companies and Investment Advisers for Purposes of the Regulatory Flexibility Act (January 7, 2026) at https://www.sec.gov/files/rules/proposed/2026/ia-6935.pdf (“Proposing Release”).
