Investing Entities: Defining Them and Why Businesses Need to Authenticate (2024)
In the world of investments, access to certain high-risk opportunities is restricted to those with the financial might and investing acumen to handle them. One such category is the Qualified Purchaser (QP), a designation set by the U.S. Securities and Exchange Commission (SEC) to allow individuals and entities with at least $5 million in investments to access these exclusive investment opportunities.
Sumsub, a leading platform in identity verification and compliance, offers robust KYC (Know Your Customer) and KYB (Know Your Business) solutions to help businesses meet the regulatory requirements for qualified purchasers.
Who Qualifies as a Qualified Purchaser?
A qualified purchaser can be an individual or an entity, such as a trust, family office, or institution, that meets the $5 million investment criterion. This designation is distinct and generally more stringent than the Accredited Investor standard, which has lower thresholds based on income or net worth.
The qualifications are related to the ownership of investments that are more sophisticated or higher-value, often enabling access to private funds and investment pools not open to the general public.
The Verification Process
To acquire a qualified purchaser status, investors must go through a verification process that typically involves providing financial documentation. Sumsub helps businesses verify qualified purchasers, prevent identity fraud, and monitor transactions in real time.
For entities, such as trusts or corporations, the threshold is usually $25 million in investments. The verification process includes providing statements of investments (brokerage accounts and financial statements) and other relevant documents that prove ownership of the assets above a certain threshold.
Sumsub's KYC and KYB Solutions
Sumsub's KYB solutions validate businesses by cross-referencing corporate documents with official registries and proprietary databases. Meanwhile, Sumsub's KYC tools verify identity and address, and provide custom questionnaires to gather detailed financial information, along with AML screening.
Moreover, Sumsub offers robust tools for identity theft prevention using biometric verification.
Benefits of Being a Qualified Purchaser
Being a qualified purchaser opens doors to a wider range of investment opportunities, often with the potential for higher returns. However, these investments come with higher risks, which is why the SEC imposes certain regulations on qualified purchasers to prevent fraud and ensure transparency in the investment process.
Investment funds that cater to qualified purchasers are required to provide detailed disclosures about the risks and strategies of the investments. These funds are often subject to audits and regulatory reviews to ensure compliance with federal laws.
In conclusion, Sumsub's KYC and KYB solutions provide businesses with the tools they need to verify qualified purchasers, ensuring compliance with regulatory requirements and protecting against identity fraud. This, in turn, allows businesses to offer their clients access to a wider range of investment opportunities, providing them with the potential for higher returns while mitigating the risks associated with these investments.
[1] https://www.investopedia.com/terms/q/qualified_purchaser.asp
A qualified purchaser can be an individual or an entity, such as a trust or corporation, that demonstrates a substantial investment portfolio of at least $5 million (for individuals) or $25 million (for entities). Sumsum's KYC and KYB solutions, including biometric verification, help businesses verify the qualifications of potential qualified purchasers, thereby facilitating access to a wider range of high-return, yet higher-risk investment opportunities.
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