Under the Corporations Act, a client’s classification as retail or wholesale can change if the facts supporting the classification change or a different financial product or financial service is provided. AFS licensees should reassess classification whenever the applicable statutory test or relevant circumstances change.
Expanded Answer
Retail or wholesale client status is not a permanent designation. The Corporations Act applies the wholesale client tests to the particular financial product or financial service being provided. A client who qualifies as a wholesale client for one transaction may be a retail client for another if the relevant statutory criteria are not satisfied. Likewise, changes in a client’s circumstances may affect whether a wholesale client test continues to apply.
ASIC expects AFS licensees to have processes that ensure client classifications remain accurate over time. Classification decisions should be supported by current evidence, such as accountant’s certificates or other records where relevant, and should be reviewed whenever there is a material change in the client’s circumstances, the product being offered or the financial service being provided. Continuing to rely on outdated information may result in retail clients being incorrectly treated as wholesale and the loss of statutory consumer protections.
Key principles:
- Review client classification whenever the relevant facts change.
- Apply the wholesale client tests to each relevant financial product or financial service.
- Retain current evidence supporting every wholesale client determination.
Why it matters
Failing to reassess client classification can result in the wrong regulatory obligations being applied, exposing an AFS licensee to ASIC scrutiny, remediation obligations and potential enforcement action. Regular reviews help ensure clients receive the protections required under the Corporations Act.
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Practical guidance
- Review client classifications whenever the financial product, financial service or client circumstances change.
- Obtain updated evidence before continuing to rely on a wholesale client determination.
- Document each reassessment and retain records supporting the classification decision.
Further reading
Retail Clients Explained: Why Client Classification Matters
Wholesale Clients, Real Risks: How to Stay Off the Ropes and Stay in the Fight