Tackling misleading disclosure by wholesale issuers is a priority for the FMA, as detailed in our Financial Conduct Report, which outlines our regulatory priorities for the financial year.
We sought guidance from the High Court to confirm the correct interpretation of the eligible investor exclusion - specifically regarding how eligible investor certificates are used, confirmed, and accepted in the wholesale investment sector.
In September, we welcomed the clarity provided by a High Court ruling.
FMA Executive Director for Response and Enforcement Louise Unger says, "We appreciate the clarity on how the law should be interpreted. We remain committed to ensuring confident participation in wholesale markets by offerors and eligible investors, including by enforcing fair dealing in wholesale offers. We are focused on encouraging positive behavioural change among participants.
"There has been an increase in complaints and concerns raised with the FMA about wholesale offers of financial products. Several complaints led to an inquiry and ultimately a warning to HP Capital Limited, trading as Finbase, earlier this month," says Louise.
The warning was for serious breaches of the Financial Markets Conduct Act and Financial Markets Conduct Regulations. It related to Finbase's offers and advertising of, including its use of sponsored AdWords in relation to, its Single Investment financial products. The warning also related to breaches of Part 3 of the Financial Markets Conduct Act, as Finbase incorrectly applied the small offers exclusion and the wholesale investor exclusion.
"The warning demonstrates the importance of issuers correctly using and applying these regulated offer exclusions if they want to ensure their offer does not become a retail offer. It also emphasises the need for issuers to take considerable care with the way they advertise an offer, to prevent potential investors from being misled about the nature, characteristics and suitability of a financial product," says Louise.
"Use of the wholesale exclusion and guidance about advertising for wholesale offers are covered in our thematic review of the wholesale investor exclusion [PDF 1.8MB] . This warning is a reminder to others about what is appropriate in that space.
"The FMA will continue to take action against conduct that misleads people into wholesale investments when they are entitled to the protections provided 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."
