AFCA tightens wholesale investor remit

It may be tougher for wholesale investors looking to the Australian Financial Complaints Authority to help resolve a dispute as the authority tightens its rules on how it assesses their complaints.

AFCA will shortly update its operational guidelines for assessing complaints from wholesale clients following feedback from a Treasury independent review that highlights changes to two categories, AFCA lead ombudsman Shail Singh told the Member Forum this morning.

Chapter 7 of the Corporations Act looks at whether an investor is retail or non-retail.

"For non-retail investors, there are two categories - wholesale and sophisticated. That can be further broken down into four categories, which is by wealth, by professional investor status, investment amount, and by knowledge and experience," he said.

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"What's confusing about this is, under the wholesale definition, you can be wholesale by wealth [with] an accountant certificate under Section 761G (7) (C), which basically means that by having more than $2.5 million or $250,000, you are a professional investor under Section 761 G (7) (D)," he said.

This includes AFS Licensees with over $10 million dollars or the investment amount is at least $500,000 (under section 761G (7)(A)).

"You can also be a non-retail client if you're a sophisticated investor and that's done by knowledge and experience," Singh pointed out.

Two out of the four categories - sophisticated and professional investors - will soon be outside of AFCA's jurisdiction - unless there was a problem with the classification, Singh said.

Once the new guidelines are released, AFCA will have the "the discretion to exclude disputes brought by wholesale investors".

"What that means is a wholesale investor can potentially bring a dispute to us, we then have to consider whether we exclude it," he said.

Retail investors have the benefit of consumer protections set out in the Corporations Act. Conversely, wholesale investors do not.

"Sophisticated and professional investors generally have the knowledge and expertise to understand the consequences of being considered non-retail," Singh said.

The guideline is set to be released shortly, pending ASIC's approval.