In brief
The Australian Securities and Investments Commission has announced that it will take no action where a self-managed superannuation fund trustee is treated as a wholesale client, notwithstanding that the trustee does not have to meet the $10 million net asset threshold, even though the financial service in question may relate to a superannuation product. It has done so despite its view to the contrary published in 2004. Partner Michelle Levy and Senior Regulatory Counsel Michael Mathieson report.
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Background
The distinction between a financial service being provided to a person as a retail client or a wholesale client can be difficult to identify, nowhere more so than in the context of financial services provided to superannuation trustees.
If a financial service does not relate to a superannuation product, the general tests for determining whether the superannuation trustee is a retail or wholesale client can apply. For example, the trustee will be a wholesale client if a qualified accountant certifies that it has net assets of at least $2.5 million.
If a financial service does relate to a superannuation product, the general test cannot apply and the trustee will need to have net assets of at least $10 million.
Consequently, the key question has been whether a particular financial service, most commonly the provision of financial product advice, relates to a superannuation product or not.
In 2004, ASIC stated (in QFS 150) that a financial service would generally relate to a superannuation product where it was provided to a self-managed superannuation fund (SMSF) trustee. Therefore, in ASIC's view, a SMSF trustee needed to have net assets of at least $10 million in order to be qualified as wholesale.
No action position
In stating its 'no-action' position last Friday, ASIC referred to the 'ongoing legal uncertainty about when a financial service relates to a superannuation product'. It said nothing of its own contribution to the uncertainty, through QFS 150.
ASIC also said that 'legal uncertainty … is undesirable and [it] supports a review of the test to ensure that it is both clear and appropriate'. Presumably ASIC thinks its no-action position does not expose any SMSF trustees to risks that are inappropriate. ASIC also noted that its no-action position 'will not affect any private rights of action that may be available to third parties'.
Although a no-action position from ASIC is never ideal (compared with clearly drafted law), ASIC's announcement is to be welcomed. As ASIC says, a review of the test is needed. A 2011 Treasury options paper on the wholesale/retail test attracted 45 submissions, which were followed by … the sounds of silence.
The lesson to be learned by ASIC from this episode may be that it should be in less of a hurry to express views on complex and difficult legal matters in its guidance material, particularly when its views suggest that the law is more burdensome than may, in fact, be the case.