Law Council of Australia

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Wholesale Investor Inquiry - Opening Statement

11 October 2024

On 3 October 2024, the Law Council of Australia appeared before the Parliamentary Joint Committee on Corporations and Financial Services to give evidence about the inquiry into the Wholesale investor and wholesale client tests. The Law Council was represented by Pip Bell, Chair, Financial Services Committee, Business Law Section; Andrew Clements, Taxation Committee, Business Law Section; Nathan Hodge, Superannuation Committee, Legal Practice Section; and Sarah Dulhunty, Corporations Committee, Business Law Section.

The opening statement was read by Pip Bell. Read the opening statement below.

“The Law Council of Australia welcomes the opportunity to appear before the Committee this morning in relation to its inquiry into the wholesale investor test for offers of securities, and the wholesale client test for financial products and services, contained respectively in Chapters 6D and 7 of the Corporations Act.

The Law Council’s submission to this inquiry draws on the experience of its Business Law Section’s Corporations Committee, Financial Services Committee and Taxation Committee. Additional comments have also been provided by the Legal Practice Section’s Superannuation Committee. 

As a general observation, the current legal requirements for the wholesale investor and wholesale client tests are complex, and the Law Council welcomes measures intended to address the inaccessibility of the existing framework.

In its review of the Legislative Framework for Corporations and Financial Services Regulation, the Australian Law Reform Commission noted that the classification of a client as retail or wholesale is of greater consequence now than it was at the time of the 2001 reforms. This is because the application of the tests has greatly expanded from their origins in whether or not a person required the level of disclosure in a regulated prospectus to be appropriately informed about an investment.

As a result of this expansion, many matters now are impacted by the wholesale investor and client tests, for which there would necessarily be ramifications in the event that changes were to be made to these tests. A number of these intersections are detailed in our written submission, and relate to impacts on investors, operators of managed investment schemes and corporate collective investment vehicles, licensed providers of financial services, exempt providers, and regulators including the Australian Securities and Investments Commission and the Australian Financial Complaints Authority.

Due to these wide-ranging consequences of reform, the Law Council considers that any consultation process must take account of the broad range of stakeholders who would be impacted if any changes were made to the tests.  Such a process should:

Our submission highlights several areas for improvement to Chapter 6D and Chapter 7 of the Corporations Act, including the need to address inconsistencies in the use of defined terms, and ensure that Regulations containing long-term modifications to the Corporations Act are promptly reflected through reforms to primary legislation.

The Superannuation Committee has added further areas for considering, including in relation to the application of the wholesale client test where the client is the trustee of a superannuation fund. The Superannuation Committee submits that, to remove this uncertainty, the law should be amended to clearly provide that a superannuation trustee is a wholesale client if it satisfies any of the tests that apply to other categories of investors.

The Taxation Committee further notes that, while tax considerations may not directly influence the outcome of this inquiry, it is important to recognise that changes to the tests can have unintended adverse impacts on the tax status of commonly used investment vehicles in the managed funds industry.

I refer to our written submission and its attachments for further reflections on the wholesale investor and wholesale client tests. Again, we thank you for the opportunity to appear, and we look forward to responding to your questions.”

Last Updated on 11/10/2024

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