Skip to main content

Index wholesale investor test says ASIC

Mike Taylor23 May 2024

The Australian Securities and Investments Commission (ASIC) has recommended that the wholesale investor tests be increased and then indexed to account for inflation.

The regulator also wants to introduce penalties and other sanctions for misuse of the accountant’s certificate mechanism for classifying wholesale investors and whole clients along with revision of the current licensee assessment of an investor or client as wholesale.

In a submission filed with the Parliamentary Joint Committee on Corporations and Financial Services review of the wholesale investor regime, ASIC said it had “witnessed the harm that can arise when investors are classified as wholesale, but do not have the financial literacy or resources to weather financial loss.

ASIC said that, in summary, we recommend:

  • increasing the financial thresholds for classifying a person as wholesale to account for inflation;
  • introducing a statutory mechanism to increase the financial thresholds over time;
  • introducing penalties and other sanctions for misuse of the accountant’s certificate mechanism for classifying wholesale investors and clients; and
  • revising the current subjective test for Australian financial services (AFS) licensee assessment of an investor as wholesale to be more objective or increasing the level of prescription in the test.

The regulator also pointed out that In other jurisdictions, the tests to distinguish between retail and wholesale clients are based on higher financial thresholds and/or are supplemented by prohibitions on certain investments being offered to retail clients.

“As Australia’s more liberal regime does not generally prohibit specific investments for retail clients, it is critical that our wholesale and retail settings remain effective over time,” the ASIC submission said.

ASIC has observed numerous instances of serious harm suffered by investors who are not financially sophisticated or considered wealthy by today’s standards, after entering wholesale-only investments.

We consider that the wholesale tests should be updated to better ensure that investors who are, in essence, retail investors are recognised as such and receive the benefit of the important statutory protections that apply only to retail investors.

We recognise that some businesses and investors may wish to retain or even reduce the current settings to support fundraising and investor access to investment opportunities. Our view is that:

(a) under an appropriately framed increase to the wholesale tests, the impact on business will not be significant, and there would still be avenues for fundraising; and

(b) some investment opportunities remain too speculative, complex or risky to be accessed by clients who are truly retail clients.

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

Subscribe to comments
Be notified of
Newest Most Voted
Inline Feedbacks
View all comments
Corrupt Useless ASIC
6 days ago

The very same ASIC that charges Wholesale Advisers an $18 Levy v’s Retail Advisers $2,818 Levy.
ASIC spent just $35,000 on Wholesale Adviser supervision out of an Adviser regulatory cost of over $58 MILLION.
And now that very same ASIC are somehow concerned about Wholesale Advisers.
About the harm caused.
If ASIC has observed such harm how did it cost so little to observe and monitor Wholesale Advisors ?
Freaking ASIC either lying yet again.
Or ASIC charging Retails Advisers obscene levies to pay for others to be regulated.
ASIC stinks yet again.

6 days ago

They should also be ensuring that SMSF trustees are required to meet the wholesale investor definition.

6 days ago

If ASIC looked at overseas wholesale investor tests, did they also take note of the cost of operating a retail financial advice business and the associated red tape in overseas countries? It might help to explain why the wholesale investor loophole is being exploited here in Australia.

Free Markets Guy
4 days ago

if ASIC wants more clients to be classified as retail, even though it already struggles with the current load of retail clients, how are they going to deal with the additional workload? Oh wait, more ASIC levies please! But in all seriousness, wholesale products have also evolved over time, and advisers + asset consultants have also increased their understanding of such products. ASIC still thinks we’re in GFC land.