Wholesale funds warn on cost of due diligence

The Financial Services Council (FSC) has said that if wholesale funds are forced to undertake additional due diligence around confirming the status of wholesale investors it will make their products less competitive.

Describing itself as “the peak body for fund managers, superannuation funds, financial advice licensees and platforms”, the FSC has confirmed to a Parliamentary Committee the level of reliance wholesale accountant certificates.

Answering questions on notice from recent hearings of the Parliamentary Joint Committee on Corporations and Financial Services, the FSC declined to comment on the attitude of the major accounting groups to continuing the accountants certificate regime.

The FSC said it was “not ideally placed to provide insights into the day-to-day generation of qualified accountant certificates”.

“By necessity, many fund managers rely on qualified accountant certificates to verify that prospective clients meet the wholesale client/investor test,” it said.

“The FSC is broadly supportive of the present regime since individual accountants are much better able to interrogate their clients’ compliance with the wholesale client/investor test than fund managers.”

“Australian wholesale fund managers already need to compete with:

1. domestic retail funds; and 2
2. offshore asset managers,

neither of which are handicapped by the compliance burden associated with the wholesale client/investor test provisions,” the FSC said.

“If wholesale funds are forced to undertake additional due diligence functions currently performed by accountants, this administrative burden will necessarily be passed onto consumers and render such wholesale products less competitive. This will deprive areas such as the domestic venture capital market of sorely needed capital which is needed to generate new jobs.”