FMA releases Thematic Review on the Wholesale Investor Exclusion

  • Legal update

    20 October 2022

FMA releases Thematic Review on the Wholesale Investor Exclusion Desktop Image FMA releases Thematic Review on the Wholesale Investor Exclusion Mobile Image

Today, the Financial Markets Authority (FMA) issued its Report on the Thematic Review of the Use of the Wholesale Investor Exclusion (Report). In the Report, the FMA sets out its findings from its deep dive into the practices (including certificates obtained) of a number of property-related investment industry firms targeting wholesale investors, and provides new guidance for offerors and those lawyers, accounts and financial advisers who provide confirmations for Eligible Investor Certificates.

Links are available for the media release and the Report.

Who needs to read it? Why?

The Report is relevant to all those who make unregulated offers of financial products in reliance on the wholesale investor exclusion under the Financial Markets Conduct Act 2013 (FMCA), and to those who confirm Eligible Investor Certificates. While the focus of the thematic review was on offers made in connection with property-related offers, the FMA emphasises that “the findings are applicable to all wholesale offers”. This extends, therefore, to the private equity, venture capital, angel investment and start-up space where Eligible Investor Certificates are often used.

What does it cover?

The FMA has noted an increase in the number of complaints and concerns raised in relation to wholesale offers of financial products. In response to this, the FMA undertook a thematic review of wholesale offers with a focus on offers made in connection with property-related investments. The FMA reviewed:

  • advertising used to find and attract investors into “wholesale offers”;
  • how the wholesale investor exclusion is described in offer documentation and advertising materials;
  • who provides investors advice about whether they fit within the wholesale investor exclusion criteria, especially by self-certification as an eligible investor;
  • who confirms Eligible Investor Certificates; and
  • whether there has been any use of hard-sell techniques to pressure investors to self-certify as eligible investors.

The FMA has identified several practices in the market for wholesale offers which they regard as undesirable. These are outlined below, along with the new associated FMA guidance.


In relation to advertising avenues and materials used by offerors, the FMA noted several concerns:

  • offers were promoted through a broad range of advertising channels, rather than focusing directly on suitable investors;
  • offerors were using digital advertising strategies, for example Google AdWords, that may target people for whom the offer is not suitable; and
  • promotional materials often advertised high fixed returns and downplayed risk.

The FMA expects that offerors should:

  • when using mainstream advertising channels, take extra care to ensure the audience is not misled;
  • ensure the overall impression of an advertisement is not misleading or deceptive;
  • ensure any qualifications to headline representations are proximate, prominent, and effective so that the representation does not mislead or deceive, especially where promotional materials are advertised through mainstream channels;
  • not make misleading comparisons between different financial products, for example, between an investment in a managed fund and an investment in a bank term deposit; and
  • not undertake any advertising practice that could lead an investor to draw comparisons between dissimilar financial products, especially if influencing potential investors to do so appears to be the intention of the practice.
References to the wholesale nature of the offer

The FMA noted that promotional materials were not always clear that the offer was only available to wholesale investors, and statements that an offer is available to “wholesale and eligible investors” could give the impression that an offer is available to someone other than a wholesale investor when it is not.

Offerors should ensure that all advertising of a wholesale offer clearly states that it is open to wholesale investors only, and that such a statement should be made in a sufficiently prominent manner to bring it to the attention of the audience. Offerors should not use the term “eligible investor” or similar alongside the term “wholesale investor”.

Eligible Investor Certificates

In its review, the FMA noted numerous incomplete Eligible Investor Certificates, including some with grounds that were not capable of supporting the matters certified.

While an offeror need not independently verify the information in the certificate, the grounds stated by the investor in their Eligible Investor Certificate should “demonstrate a connection between the investor’s prior relevant experience in acquiring or disposing of financial products, and the transaction to which the certificate relates”. Where the stated grounds are not relevant to the certification, the certificate will not, in the FMA’s view, meet the legislative requirements in Schedule 1 of the FMCA.

An offeror should, when relying on an Eligible Investor Certificate, ensure that:

  • all requirements of certification have been completed;
  • the grounds stated are relevant and support the certification of previous experience in acquiring or disposing of financial products that is relevant to an assessment of the financial products on offer; and
  • there is no reason to believe the person does not have the previous experience certified.

Further, the FMA was not happy with Eligible Investor Certificates using a ‘tick-box’ list of pre-populated grounds, preferring free-form text boxes so investors can articulate the grounds for certification themselves.

Confirming Eligible Investor Certificates

The FMA noted multiple instances of professional advisers confirming certifications where no grounds were stated in the Eligible Investor Certificate, three instances of a professional adviser confirming their own Eligible Investor Certificate, and evidence of one offeror supplying a preferred professional adviser for investors to have their Eligible Investor Certificates confirmed.  These are not acceptable.

Lawyers, accountants or financial advisers who confirm Eligible Investor Certificates must:

  • consider the grounds for an investor qualifying for the certification set out in the certificate;
  • be satisfied that the investor has been sufficiently advised of the consequences of certification; and
  • have no reason to believe the certification is incorrect or that further information or investigation is required as to whether or not the certification is correct.

Advisers should note that this is a clear hardening of the FMA’s position from the previous position set out in its website FAQs (now removed) that they “don’t need to verify the information in the certificate, or make an assessment as to whether the experience is sufficient or not”.

Our view

We welcome the guidance from the FMA which will be helpful to offerors and provide additional protection to investors who may have been tempted to self-certify themselves into products that they did not understand.

As the FMA explicitly notes: “[h]aving set our expectations, we now expect a higher level of compliance in this space. This includes acting in ways that are properly focused on the outcome that, where the Eligible Investor Certification is used, only investors with sufficient knowledge and experience in dealing in financial products are accepted into the offer”.

The guidance does, however, find the FMA pushing up against the intentions of the legislators, which were at least in part to allow issuers easier access to capital by providing for self-certification rather than expecting issuers to vet investor’s qualifications. The initial version of the Financial Markets Conduct Bill had placed an obligation on issuers to ensure that they did not have “reasonable grounds to believe that the certification was incorrect”. Following submissions, this was reduced to a requirement that an issuer not rely on the certificate where it had “actual knowledge” it was incorrect.

Placing a positive requirement on the offeror to ensure that “the grounds stated are relevant and support the certification of previous experience in acquiring or disposing of financial products that is relevant to an assessment of the financial products on offer” imposes a high standard of care on offerors to review each certificate received against this test. Be aware too, that it is not possible to remediate an Eligible Investor Certificate after the financial products have been issued.

What next?

If you have any questions in relation to the Report or would like any advice about what it means for your business, please contact one of our experts.

This article was co-authored by Scott Yang, a Solicitor in our Financial Services team.