The federal government has released an options paper to review the distinction between retail and wholesale clients under the Corporations Act.
Financial Services and Superannuation Minister Bill Shorten said the review was part of the government's Future of Financial Advice reforms and was long overdue.
"The distinction between retail and wholesale clients has not been significantly updated in 10 years," Shorten said.
"During the global financial crisis (GFC), we saw clients without the necessary investment experience exposed to complex financial products on the wholesale market."
He said individual investors as well as bodies, such as local councils, could be classed as wholesale clients.
Wholesale clients did not receive the same level of protection as retail clients as they were considered better informed and better able to assess the risks involved, he said.
"We need to make sure the line between retail and wholesale clients properly identifies those in need of regulatory protection," he said.
The options paper discusses the rationale for the review as well as requirements in comparable foreign jurisdictions before presenting a number of options for reform.
As part of the options paper, the government has put forward a number of recommendations, including retaining and updating the current system to recognise and account for problems experienced during the GFC, removing the distinction between retail and wholesale clients so that all clients receive protections and disclosures currently only afforded to retail clients, and introducing a subjective "sophisticated investor" test based on the client's experience and ability to understand the product as the sole distinction.
Shorten called on industry and interested parties to provide feedback on the paper.
