The Parliamentary Joint Committee on Corporations and Financial Services (Committee) has been inquiring into the wholesale investor test for offers of securities, and the wholesale client test for financial products and services in the Corporations Act 2001 (Inquiry) (see our previous post). The Committee has now released its report from the Inquiry.
The Inquiry followed on from the Australian Treasury’s Managed Investment Scheme Review (see our previous post) (MIS Review) which sought feedback on whether the wholesale client thresholds remain appropriate given they have not changed since their introduction in 2001, among other matters. Treasury’s findings on the MIS Review were due to be reported to the Government in early 2024 but these have not been publicly released.
The Committee made just two recommendations:
- That the government consider establishing a mechanism for periodic review of the operation of the wholesale investor and client tests; and any such mechanism include mandatory requirements for engagement and consultation with Australia’s investment industry; and
- That, subject to a period of stakeholder consultation, the government amend the Corporations Act 2001 to remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.
There was much speculation about the outcome in relation to the wholesale investor/client tests, particularly given that some stakeholders, most notably the Australian Securities and Investments Commission (ASIC), advocated for the thresholds to be substantially increased.
The Committee found that “a case for raising the test thresholds has not been established at this time” and that the current thresholds remain appropriate notwithstanding the greater proportion of people meeting the thresholds.
The Committee said that it was incumbent on ASIC as the chief regulatory body for Australia’s financial system to ensure that its policy recommendations include meaningful consultation with industry stakeholders. In the Inquiry hearings, ASIC acknowledged that it had not consulted industry regarding its submission to increase the thresholds.
The Committee also encouraged the government to consider whether a broader review of the legislation regulating wholesale and retail investors and the financial markets is needed. The Committee suggested that such a review could build on the Australian Law Reform Commission’s Review of the legislative framework for corporations and financial services regulation and the Quality of Advice Review.