The Parliamentary Joint Committee on Corporations and Financial Services (Committee) has commenced an inquiry into the wholesale investor test for offers of securities, and the wholesale client test for financial products and services (together, wholesale investor/client tests) in the Corporations Act 2001 (link here) (Inquiry).

The wholesale investor/client tests are extremely important in relation to disclosure, Australian financial services (AFS) licensing, fund registration, and whether various other regulatory requirements apply.

The Inquiry’s terms of reference include:

• review the current test, including the application of the tests in practice;
• the historical development of the wholesale investor/client tests;
• comparison with overseas jurisdictions, including any proposed or recent changes to tests used in similar contexts;
• consideration of any proposals, including any evidence to support such proposals, the possible consequences (both intended and unintended) of any change to the wholesale investor/client tests, the costs and benefits of any change, the impact of any change on different cohorts of investor/client and other stakeholders;
• any potential adjustments due to proposals to address the concerns of stakeholders;
• the process to be adopted prior to settling any change to the wholesale investor/client tests, including any additional Government consultation process necessary to ensure full and proper consultation prior to implementing any change; and
• any related matters.

Written submissions can be made to the Inquiry until 15 May 2024. The Committee intends to report its findings to Parliament by the end of 2024.

The Inquiry follows on from the 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. While Treasury’s findings from the MIS Review are due to be released to the Government shortly, there has been much speculation about the outcome in relation to the wholesale investor/client tests.

If the wholesale client thresholds are increased, wholesale financial services providers will need to consider how any changes to the thresholds will affect their business going forward, including whether they will only provide financial services to a more limited group of wholesale clients or seek to vary their AFS licence to authorise them to provide financial services to clients that become retail clients under the increased thresholds.

Prudence Birchall co-authored this article.