Consultation on Inquiry into the Wholesale Investor and Client Tests in the Corporations Act

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Consumer Protection

The Parliamentary Joint Committee on Corporations and Financial Services is conducting an inquiry into the wholesale investor test for offers of securities and the wholesale client test for financial products and services in the Corporations Act 2001.

This is a very important inquiry for consumers because:

  • A wholesale investor or client does not have the same protections as a retail investor or client. These protections include obligations on providers of financial products and services in relation to: disclosure, conduct, design and distribution, and external dispute resolution. Furthermore, ASIC cannot intervene to modify or ban financial and credit products where there is risk of significant consumer detriment.
  • The current thresholds on income, net assets and product value have not been changed since the Act commenced in 2002 and, due to increased asset values and incomes, this has resulted in a very large increase in the number of consumers qualified to be wholesale investors or clients.

The inquiry’s Terms of Reference, submissions, etc. are available here.

The closing date for written submissions was 31 May 2024. The Committee intends to report to the Parliament by the end of 2024.

The current tests for wholesale investors and wholesale clients include whether a person satisfies one of the following:

(a) The minimum amount payable for the securities is at least $500,000), or the sum of that amount and other amounts previously paid for securities of the same class held by the person is at least $500,000.

(b) The person has net assets of at least $2.5 million or a gross income for each of the previous two financial years of at least $250,000 a year (in each case as certified by a qualified accountant).

There is also a category of wholesale investor called professional investor for which the test includes the investor’s experience in relation to financial products or financial services generally.

There were numerous industry submissions many of which were concerned about possible negative effects on the availability of capital for some types of investments if the current arrangements were changed. The only submission by a CFA member was from the Queensland Consumers Association which suggested mainly that the financial test levels be increased to reflect the great changes in asset values and incomes since 2002 and that the principal residence, and possibly also superannuation assets, be excluded from wealth tests.

Submissions by ASIC and the Australian Financial Complaints Authority also suggested changes that would better ensure that consumers who are in practice retail investors and clients are not classed as wholesale investors and clients and therefore excluded from the important statutory protections that apply only to retail investors.

The above article was written by Ian Jarratt, from the Queensland Consumers Association (a member of the Consumers’ Federation of Australia), and a valued member of the Consumers’ Federation of Australia’s executive committee.