Case highlights lawyers' responsibility when confirming certificates: FMA CEO
In a media release, Samantha Barras – chief executive officer of the Financial Markets Authority (FMA) | Te Mana Tātai Hokohoko – has welcomed a recent High Court judgment that clarified how to interpret the rules qualifying “eligible investors” as wholesale.
Before the High Court, FMA requested clarification on the interpretation of the eligible investor exclusion in the Financial Markets Conduct Act 2013 in connection with the utilisation, confirmation, and acceptance of eligible investor certificates in the wholesale investment sector.
“In taking this case stated, our focus was on ensuring confident participation in wholesale markets by offerors and eligible investors,” Barras said in FMA’s media release.
According to Barras, over the last few years, FMA has seen a rise in investor participation, complaints made, and concerns raised relating to wholesale offers of financial products.
Regarding the appropriate approach to eligible investor certificates, the court made the following findings:
“This case confirms that there is a responsibility on lawyers, accountants and financial advisers to correctly confirm eligible investor certifications made by investors, and that wholesale offerors are able to rely on those certifications and confirmations,” Barras said.
Barras added that lawyers, accountants, and financial advisers might need to ask for more information to assess the investor certification’s accuracy.
According to FMA, if an offeror could not rely on the eligible investor certificate, disclosure should be made as a retail offer, except if the investor was otherwise deemed a wholesale investor.
“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,” Barras said.
In the media release, Barras acknowledged that wholesale investment offers targeted experienced investors, often with sizable sums of money for investments, and presented the opportunity for significant returns.
However, Barras pointed out that wholesale investment offers lacked the same safeguards afforded to retail investment offers and other regulated offers.
FMA noted in its media release that eligible investors were a subset of wholesale investors that had to provide certificates – confirmed by an accountant, lawyer, or financial adviser – to establish their appropriate experience to invest in wholesale offers.
Barras said FMA would keep cooperating with the Ministry of Business, Innovation and Employment (MBIE) on the proper policy settings for the wholesale investment regime, considering the shifting distribution methods and nature of wholesale offers.
“We will also continue to take action against conduct that misleads people into these wholesale investments, when they need the protections afforded by retail investments,” Barras added.
