The ‘eligible investor’ test case sought by the Financial Markets Authority (FMA) has been slated for May 1 this year in a High Court hearing set to draw the attention of the wholesale funds sector.
Margot Gatland, FMA head of enforcement, confirmed the court date in the latest regulatory update, noting the action would clarify “the use, confirmation, and acceptance of eligible investor certificates in the wholesale investment sector”.
“We have seen from our engagement with the market that there are differing views on what the legislation requires for eligible investors and as such it may not be clear what is needed for a person to qualify as an eligible investor,” Gatland says.
Under the FMA case filed late last year, wholesale investment issuers would face stricter compliance obligations to review eligible investor declarations signed by third-party professionals such as lawyers, accountants and financial advisers.
The wholesale investor criteria – especially the self-certified ‘eligible’ route – have come under fire of late following the collapse of the Du Val property investment empire, in particular.
But the question of when investors should be able to opt-out of retail protections has vexed other jurisdictions too, including in Australia where the Parliamentary Joint Committee on Corporations and Financial Services recommended no substantial changes to the country’s wholesale investor regime following an inquiry.
In a report handed down in mid-February, the Australian parliamentary report notes: “During the inquiry, the committee was not persuaded by the examples of investor harm identified by ASIC and other submitters as having been caused by the current settings of the test thresholds.”
Furthermore, the committee agreed to hold the wholesale investor asset and income thresholds at A$$2.5 million and A$250,000 per year for the last two financial years; respectively: Australians who invest at least A$500,000 in a single product can also meet the wholesale standard.
“More particularly, the committee heard that increasing the test thresholds would be disruptive to established funds and investors, to the extent that significant numbers of investors currently operating as wholesale investors would be reclassified as retail investors,” the report says.
“Reducing the pool of available wholesale investors and clients would also impact negatively on foreign investment; angel and venture capital investment; other specific groups such as women and young investors; and on specific investor groups.”
Elsewhere, the February FMA update notes that all those firms falling under the Conduct of Financial Institutions (COFI) regime have “either been licensed or have submitted their application”.
FMA director deposit taking, insurance and financial advice, Michael Hewes, says in the release: “We are expecting financial institutions to be analysing how products are performing for their customers (not just for the business), communicating clearly and regularly with customers and acting quickly if something is not working as it should be.”
The regulator has also published a new class exemption confirming climate-reporting entities won’t have to seek assurance of ‘scope 3’ carbon emissions disclosures “for accounting periods ending 31 December 2024 through to 30 November 2025”.
According to the FMA, the class exemption complements earlier “optional” relief published by the External Reporting Board (XRB) last year.
The XRB “provision recognises the temporary challenges in obtaining sufficient reliable data to support the disclosures subject to an assurance engagement and to enable increased consistency across the assurance market. The FMA exemption recognises the same challenges.”