Government Releases Options Paper on Investor Protection Threshold
As part of the Gillard Government's Future of Financial Advice reforms, the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP, today released an options paper reviewing the distinction between retail and wholesale clients in the Corporations Act 2001.
"The distinction between retail and wholesale clients has not been significantly updated in 10 years. During the Global Financial Crisis, we saw clients without the necessary investment experience exposed to complex financial products on the wholesale market," Mr Shorten said.
Individual investors as well as bodies such as local councils can be classed as wholesale clients. Wholesale clients do not receive the same level of protection as retail clients, as they are considered better informed and better able to assess the risks involved.
"We need to make sure the line between retail and wholesale clients properly identifies those in need of regulatory protection".
The options paper discusses the rationale for the review as well as requirements in comparable foreign jurisdictions before presenting a number of options for reform including:
- Retaining and updating the current system to recognise and account for problems experienced during the Global Financial Crisis
- Removing the distinction between retail and wholesale clients so that all clients receive protections and disclosures currently only afforded to retail clients
- Introducing a subjective "sophisticated investor" test based on the client’s experience and ability to understand the product as the sole distinction.
"I encourage interested parties to provide feedback on the options presented in the paper," Mr Shorten said.
Further details are available at http://futureofadvice.treasury.gov.au. Submissions on the options paper are due by 25 February 2011.
24 January 2011