A watershed for wholesale offers?

The Government is contemplating further significant changes to the wholesale offer regime through a Ministry of Business, Innovation and Employment (MBIE) discussion document focussed on whether:

the eligible investor test is too permissive
the two-year renewal cycle for certification is too short
the promotion of wholesale offers to the general public should be more tightly constrained, and
the various thresholds for wholesale investor status should be adjusted.

Submissions close on 15 September. We summarise the key proposals.

Eligible investor criteria and certification

The “eligible investor” category currently allows experienced retail investors to access wholesale offers by self-certifying that they have sufficient experience to assess the merits and risks of an offer, with a professional (financial adviser, lawyer or accountant) certifying the process has been followed correctly.

MBIE notes that this approach is relatively permissive by international standards. In comparable jurisdictions, additional income or wealth criteria often apply, and/or additional verification requirements by the offeror or certifier.

The Discussion Document reinforces concerns long held by the Financial Markets Authority (FMA) that inexperienced investors are accessing wholesale offers through the eligible investor pathway. Several reform proposals are offered:

more objective ‘experience’ definitions for eligibility, for example the recognition of membership in an angel investment group
more detailed content requirements for eligible investor certificates to better support investor understanding
greater responsibility on the professional certifier, potentially including an infringement offence for inadequate certifications, and
an investment cap for the eligible investor category, which could apply per investor or per offer.

If implemented, these changes would effectively result in a partial legislative overturning of the High Court’s 2025 judgment on eligible investor certificates.

Duration of eligible investor certificates

MBIE considers that the current two-year renewal timeframe imposes a disproportionate regulatory burden, noting that investors are unlikely to lose their knowledge of a particular investment context within that period.

It proposes either extending the expiry duration to five years or removing the renewal requirement altogether. Importantly, a separate certification would still be required for each investment opportunity.

Promotion of wholesale offers

MBIE notes that wholesale offers are increasingly being promoted through mainstream and digital channels accessible to retail audiences, sometimes using techniques that promote high fixed returns and downplay risks, without being clearly marked as wholesale-only.

MBIE is considering restricting general public advertising of wholesale offers, noting that similar advertising restrictions already apply to small offers and small schemes.

Wholesale investor thresholds

Feedback is also sought on whether the various thresholds to define wholesale investor status should be adjusted – in particular the $750,000 per offer investment threshold.

The paper notes examples where individuals inherit wealth or sell a major asset and suddenly qualify as wholesale investors despite lacking the experience to understand the risks involved—even with the existing warning and acknowledgment requirements in place.

Our comments

Market participants will need to assess how any changes could affect their business models and investor on-boarding processes. While the proposed extension of eligible investor certificate expiry periods is likely to be welcomed, we expect that the proposal to restrict the promotion of wholesale offers may attract significant industry pushback.

The general policy concern about inappropriate advertising of wholesale offers is legitimate, but it is critical that the detailed implementation does not unduly restrict capital-raising in the wholesale sector. In our view change should be restricted to prohibiting general solicitation of investment by eligible investors.

Wholesale offers are already under the microscope through the FMA’s recent regulatory proceedings and enforcement actions, the ongoing focus on wholesale issuer conduct (including annual Financial Conduct Reports), a thematic review in late 2022, and the High Court judgment concerning eligible investor certificates in late 2025.

And wider changes to the regulatory regime for wholesale offers in the Financial Markets Conduct Act (FMCA) is likely. Anecdotally, the speculation is that these could include:

• mandatory regulatory returns for wholesale offerors – providing the FMA with further information on eligible investor certificate usage in the wholesale sector
• a registration regime for wholesale offers
• requirements for certain wholesale offerors of debt securities to appoint an independent supervisor (to align with the regime for retail offers), and
• audit requirements. These do not typically apply to a wholesale offeror, unless the issuer is a “large company” as defined in the Financial Reporting Act 2013.

We are not aware of other countries seeking to licence wholesale offerors and would not support such a move given the global portability of capital and the risk that New Zealand investors may simply invest offshore. A better solution would be more pro-active FMA enforcement of Part 2 of the FMCA in situations where a wholesale offeror mispresents the product offered or risks involved.

Any further reforms will need to carefully balance consumer protection concerns with the desire to avoid unnecessary compliance costs that would be inconsistent with the spirit of the wholesale offer regime.

Next steps

If you would like more information on how the reforms may affect your business or assistance in preparing a submission, please contact one of our experts.