The Australian Financial Complaints Authority (AFCA) has highlighted a critical detail in the Australian Securities and Investments Commission’s (ASIC) approach to enforcing the wholesale investor rules and confirmed its own stance on the issue.
AFCA senior ombudsman Patrick Hartney pointed out ASIC’s statement in 2014 confirming it would not take enforcement action against SMSF trustees who incorrectly used the $2.5 million net asset threshold to be considered a wholesale investor did not mean these individuals do not have access to compensation avenues in the future if they suffer loss from transactions entered into under this premise.
“While ASIC has said it will not be enforcing [the $10 million asset wholesale investor] requirement, it doesn’t restrict consumers from pursuing private actions, which would include [those made available by] AFCA,” Hartney told attendees of the industry body’s member forum.
He reiterated AFCA will continue to consider any service provided to an SMSF trustee pertaining to a superannuation fund as one involving a retail client unless the individual in question can satisfy the $10 million asset threshold for wholesale investors.
“The key point here though is that AFCA is very comfortable with the way the law has been interpreted in [its] decisions,” he said.
With regard to the compensation amounts involving the incorrect treatment of SMSF trustees are wholesale investors, he revealed the level of knowledge and sophistication the claimant possesses plays a part.
AFCA investments and advice lead ombudsman Shail Singh, however, took the opportunity to stress the level of an investor’s knowledge and wherewithal does not play a part in the actual determination of whether they qualify as a wholesale investor.
“It’s really important to remember [in cases such as those stemming from joint complaint 923745/1080719], even though the investor was experienced, the wholesale test doesn’t require consideration of their actual experience. It’s to do with the value of assets,” Singh confirmed.
“So even though the investor was experienced, that was taken into account in terms of contribution [and not] in terms of making the [wholesale investor] assessment.”
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