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FOFA 'wholesale client' definition in jeopardy

Political events over the past two weeks have resulted in legal uncertainty around the application of the 'wholesale client' definition for advisers, a Minter Ellison partner has warned.

Minter Ellison financial services regulatory lawyer Richard Batten has issued a communication outlining the implications of the “reallowance” motion successfully moved by the Senate on Thursday in order to facilitate the deal struck between the major parties on key FOFA points of contention.

While the reallowance motion – permitting the government to reintroduce a slightly amended bill – has provided certainty on issues such as grandfathering and stamping fees, no such clarity has been provided on the 'wholesale client' definition.

“What does not make sense is that the reallowance motion does not apply to the other adjustments to the 'retail client' definition in the Corporations Regulations in the original Streamlining Regulation,” Mr Batten said.

“This will create considerable inconsistency and uncertainty regarding the application of the 'wholesale client' definition, meaning that some clients will be retail for some purposes (FOFA) and wholesale for others (disclosure).

“This anomaly will create considerable cost for the industry and seems inconsistent with the government's goal of reducing red tape.”

Specifically Mr Batten said raised concerns about “the ability to treat as wholesale clients companies and trusts controlled by or related to a wholesale client; including assets of controlled companies and trusts when determining whether a person is a wholesale client; [and] the clarification that the $10 million test is calculated by reference to gross assets and includes assets owned by a person whether or not they 'control' them”.

He also said it was a “shame that a circuit breaker has not been found” on these issues.