Under the Corporations Act, a client is treated as a wholesale client only when they satisfy one or more of the statutory wholesale client tests for the relevant financial product or financial service. Wholesale client status is determined by law and cannot be created by agreement between the client and an AFS licensee.
Expanded Answer
The Corporations Act sets out specific circumstances in which a client may be treated as a wholesale client. These include prescribed product value thresholds, professional investor status, sophisticated investor assessments, large business tests and other statutory criteria. The applicable test depends on the financial product or financial service being provided. ASIC expects AFS licensees to assess the relevant legislative test before treating a client as wholesale and to retain evidence supporting that determination.
Wholesale client status applies only to the relevant financial product or financial service and should not be assumed across all dealings with a client. A person who qualifies as a wholesale client for one transaction may still be a retail client for another if the applicable statutory test is not satisfied. An incorrect classification may result in retail client protections being improperly excluded and expose the licensee to regulatory action.
Applies when:
The client satisfies a statutory wholesale client test for the relevant financial product or financial service.
Not required when:
The client doesn’t satisfy a legislative wholesale client test, in which case the client must be treated as a retail client.
Why it matters
Wholesale client classification determines whether important consumer protection obligations apply. Incorrectly treating a client as wholesale may result in regulatory breaches, client remediation and increased ASIC scrutiny if the statutory tests have not been properly applied.
Unsure how this applies to you?
Get a clear answer in a 15-minute call with a compliance specialist. Book your call
Practical guidance
- Assess each client against the applicable statutory wholesale client test before providing financial services.
- Retain documentary evidence supporting every wholesale client determination.
- Review client classifications whenever the financial product, financial service or relevant client circumstances change.