The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - has welcomed the clarity provided by a High Court ruling on the rules qualifying "eligible investors" as wholesale.
The FMA sought clarification from the High Court on the interpretation of the eligible investor exclusion under the Financial Markets Conduct Act in respect of the use, confirmation, and acceptance, of eligible investor certificates in the wholesale investment sector.
Wholesale investment offers can promise attractive returns but don't have the same protections of regulated offers such as retail investment offers. Wholesale investment offers are aimed at experienced investors, often with large sums of money to invest.
Eligible investors are a group of wholesale investors who must certify that they have the appropriate experience to invest in wholesale offers. The certificates they provide must be confirmed by an accountant, lawyer, or financial adviser.
FMA Chief Executive, Samantha Barrass said: "We welcome the Court's findings, which provide clarity on how the law should be interpreted."
In respect of the questions before the Court about the approach to eligible investor certificates the Court found:
- An eligible investor certificate must state the grounds for certification but need not detail sufficient investment experience in order to be valid, provided the grounds are not incapable of supporting the certification.
- An offeror must be satisfied that the eligible investor certificate is valid. However, where the certificate has confirmation from a financial adviser, lawyer or accountant, the offeror may rely on that as confirming the investor has sufficient investment experience to participate in the offer. An offeror is not required to assess the investor's actual ability to evaluate the investment or the adequacy of the grounds stated by the investor in the certificate.
- The Court confirmed that if an offeror could not rely on the eligible investor certificate, disclosure must be made as a retail offer, unless the investor is otherwise classified as a wholesale investor.
"In taking this case stated, our focus was on ensuring confident participation in wholesale markets by offerors and eligible investors," said Samantha Barrass.
"In recent years, the FMA has noted an increase in complaints and concerns raised about wholesale offers of financial products, indicating increased investor participation.
"Wholesale investment offers can promise attractive returns but don't have the same protections of regulated offers such as retail investment offers. Wholesale investment offers are aimed at experienced investors, often with large sums of money to invest.
"This case confirms that there is a responsibility on lawyers, accountants and financial advisers to correctly confirm eligible investor certifications made by investors, and that wholesale offerors are able to rely on those certifications and confirmations. That may include the need for lawyers, accountants and financial advisers to seek further information to determine whether the certification provided by the investor is correct.
"We will continue to work with MBIE on the appropriate policy settings for the wholesale investment regime, given the changing distribution methods and nature of wholesale offers.
"We will also continue to take action against conduct that misleads people into these wholesale investments, when they need the protections afforded by retail investments.
"Tackling retail investments dressed up as wholesale investments is an area of concern we have held for some time and remains strongly on our radar."
