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Financial Markets Conduct Act 2013: Wholesale Investor Exclusion under the Disclosure Regime

Written by Darryl King, PARTNER; Claire Godber, SENIOR ASSOCIATE on July 20th, 2017.    

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The Financial Markets Conduct Act 2013 (FMCA) overhauled the rules relating to securities and financial markets and introduced a new regime for offers of financial products.  Understanding the disclosure requirements is important for businesses offering investments and raising capital.

Set out below is an overview of the FMCA “wholesale investor” exclusion that permits issues to investors that are considered able to look after themselves.

It is important to note that even if an offer is made in reliance on an exclusion, the FMCA may still impose short-form disclosure, warning statements or other requirements on the offeror.

Please click here to see further information about the FMCA disclosure requirements and other FMCA disclosure exclusions.
 

Wholesale Investor Exclusion

Disclosure under the FMCA is not required if the investor is what is known as a “wholesale investor”.  There are eight categories of “wholesale investor”:

1.  investment business;
2.  investment activity criteria;
3.  large;
4.  government agency;
5.  eligible investor;
6.  $750,000 minimum investment;
7.  underwriting agreement;
8. derivatives $5 million minimum.


This exclusion also applies to offers to any entity under a wholesale investor’s control.  The chart below gives more detail about these categories and any relevant FMCA disclosure requirements.
 

How do I know if the person is a Wholesale Investor?

Categories 1 to 5: These exclusions are not straight forward as they depend on the nature of the investor and the offeror may not have these details.  Helpfully, an offeror can rely on a prescribed certificate from an investor to confirm that the investor is a wholesale investor under these categories:

  • Safe harbour certificate: For categories 1 to 4, the offeror can request the investor provide a safe harbour certificate to the offeror confirming they are a wholesale investor.  The certificate is signed by the investor and must state which category the investor falls within. 

    While certificates are not required by the FMCA, offerors can rely on a certificate unless they know before issuing the securities (called “financial products” in the FMCA) that the applicant was not a wholesale investor.  

    An offeror does not have to receive a safe harbour certificate before issuing financial products, but receiving a certificate does provide certainty for the offeror when relying on a wholesale investor category.  

  • Eligible investor certificate: For category 5, the investor is required to give the offeror an eligible investor certificate which certifies that the investor fits within the FMCA requirements for this exclusion.  The content of this certificate is prescribed by the FMCA. The certificate must be confirmed by an advisor (lawyer, authorised financial advisor, or chartered accountant) who is independent of the offeror.

Safe harbour and eligible investor certificates are valid for two years unless revoked earlier by the investor.

Categories 6 to 8: These exclusions depend on the nature of the offer so offerors can more easily assess for themselves whether these exclusions will apply.
 

Remaining Obligations

Offerors who rely on a wholesale investor exclusion will still need to be aware of the following FMCA obligations:

  • Warning statement: Where a person is investing at least $750,000 (category 6 above), alternative disclosure obligations still apply:

    • offers must include a prominent prescribed warning about the nature of the offer and the implications of this exemption.  The warning must be included at the front of every document provided to an investor that sets out the key terms of the offer; and

    • offerors must receive a written acknowledgment (in prescribed form) from the investor prior to accepting their application.

  • Fair dealing: The ‘fair dealing’ provisions of the FMCA that prohibit misleading or deceptive conduct and representations that are false, misleading, or unsubstantiated, will still apply to offers to wholesale investors.
     

Wholesale Investor Summary Chart

Picture1-30

* The value of a derivative is treated as the face value on entry divided by 10.

The term financial products in the FMCA is very broad and covers debt, equity, managed investment products and derivatives.
 

Disclaimer: This article is a general summary of complex laws and regulations that contain severe sanctions for breach and is not intended as legal advice.  Specific legal advice should be obtained in relation to proposed marketing, offering or selling of financial products.

All rights reserved © Jackson Russell 2017

Key Contacts
Darryl King Publications
Darryl King, PARTNER

Claire Godber
Claire Godber, SENIOR ASSOCIATE 

 
Topics: All, Business, FMCA
 

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