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ASIC cracks down on sophisticated investor certificates

ASIC, regulation, investing, sophisticated investor, retail investor, accountant

The corporate regulator says some accountants may be putting retail investors in harm’s way by inappropriately supplying them with ‘sophisticated investor’ certificates.

Under current regulations, retail investors – ordinary Australians choosing to invest their money – are only allowed to invest in a company where sufficient information is provided to them, in the form of a product disclosure statement or other regulated disclosure document.

However, investors with a gross income of at least $250,000 in the previous two years and have net assets of a minimum $2.5 million can be considered ‘sophisticated investors’ under the Corporations Act.

Investors who meet these requirements can receive a certificate from an accountant that permits them to invest in products that do not have the regulated disclosure documents required for retail investors as they are deemed capable of assessing an investment without those protections.

Recently, the corporate regulator has found instances where accountants bypassed these regulations and enabled retail investors to access investment opportunities that should only be available to sophisticated investors.

“ASIC is aware that, in certain recent fundraisings, some accountants have used trust or company structures that purport to allow investors who are not sophisticated investors to receive offers to purchase shares without a prospectus or other disclosure document,” the corporate regulator said.

An example of this is in the offer of shares by Kwickie International, ASIC said, adding that shares such as these “may not be offered to retail investors through a trust structure”.

“ASIC is continuing its investigation into the use of these structures. ASIC is also in discussions with the appropriate accounting professional bodies about this issue,” the corporate regulator said.

The way in which an investor’s assets are assessed to meet the sophisticated investor requirements needs to be “consistent with the reason these provisions are in the law” or retail investors would not benefit from the protections the law was designed to offer them, ASIC said.

 

ASIC cracks down on sophisticated investor certificates
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