Under the Corporations Act, a retail client is a person or entity that does not satisfy the statutory tests for wholesale client status in relation to a financial product or financial service. Retail client classification determines when additional consumer protection obligations apply to an AFS licensee.
Expanded Answer
The Corporations Act distinguishes between retail and wholesale clients because different regulatory obligations apply to each category. A client is treated as a retail client unless they satisfy one of the statutory tests that permit wholesale classification for the relevant financial product or financial service. ASIC expects AFS licensees to assess client classification before providing regulated financial services and to retain evidence supporting any decision to treat a client as wholesale.
Retail clients receive a range of statutory protections that generally do not apply to wholesale clients. Depending on the financial product or service involved, these protections may include prescribed disclosure, conduct obligations, access to internal dispute resolution and the Australian Financial Complaints Authority (AFCA), and other consumer protection measures under the Corporations Act.
Key principles:
- Retail client status is the default position unless a wholesale client test is satisfied.
- Classification applies to the specific financial product or financial service being provided.
- AFS licensees should retain evidence supporting every client classification decision.
Why it matters
Correct client classification determines which regulatory obligations apply and whether retail consumer protections must be provided. Misclassifying a retail client may expose an AFS licensee to ASIC scrutiny, remediation obligations and potential enforcement action.
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Practical guidance
- Assess every client against the statutory wholesale client tests before determining their classification.
- Document the basis for each retail or wholesale client determination.
- Review client classifications whenever the financial product, financial service or relevant client circumstances change.