FMA tests legal waters on eligible investor exclusion

Wholesale investors will likely need to provide more detailed evidence of their eligibility if the Financial Markets Authority receives support for its position on eligible investor exclusion from the High Court.

Monday, January 13th 2025, 12:16PM

by Kim Savage

Wholesale investors will likely need to provide more detailed evidence of their eligibility if the Financial Markets Authority receives support for its position on eligible investor exclusion from the High Court.

The FMA has filed a case stated proceeding, seeking the court’s view on the use, confirmation and acceptance of eligible investors certificates. Certification helps prove an investor has sufficient experience to accept a wholesale offer, forgoing the protections offered to a retail investor.

If the FMA’s position is confirmed, investors will need to prove not only that they have experience in acquiring and disposing of financial products, but also what aspects of their experience helps them to assess the offer. Offerors would also be expected to carry out their own due diligence to be satisfied a certificate is valid, rather than relying on the third party which confirmed the certification.

“The Court's opinion will assist the FMA to discharge its statutory function to provide guidance to market participants as to when investors may qualify as eligible investors and what obligations an offeror has when considering an application from an investor,” the High Court filing outlines.

“It will also be relevant to guidance provided to third-parties who are required to provide written confirmation of eligible investor certificates.”

In 2022 the FMA released the findings of a review into the use of wholesale investor exclusion, which it said had uncovered “undesirable practices”, including instances where investors were treated as eligible but did not meet the criteria set out in law. There was also disagreement between FMA and offerors about the interpretation of eligible investor exclusion, prompting the FMA to seek legal clarification.

In its filing, the FMA says it tried to get one of the offerors from its review to participate in the proceeding to provide a counter view, but the offeror didn’t want to take part. In the absence of an industry body, the FMA itself provided a summary of the offerors’ views on the interpretation of eligible investor exclusion.

The FMA says it intends to file further submissions on its position once a timetable is provided by the court.

Tags: FMA investment