NO NEED FOR MORE RED TAPE

In February this year, the federal parliamentary joint committee on corporations and financial services delivered a clear and carefully reasoned bipartisan verdict on proposed changes to the wholesale investor test: the case for lifting the bar had not been made.

The report was measured but firm. It noted that ASIC had failed to demonstrate a credible link between the current test thresholds and any systemic investor harm. Worse still, ASIC had not even consulted industry – let alone the broader community – before recommending sweeping changes that would reclassify hundreds of thousands of Australians as retail investors.

The message from parliament was unambiguous: tread carefully. And yet, ASIC appears determined to press on regardless.

At a media conference on June 4, ASIC chair Joe Longo reiterated his call for the wholesale investor thresholds to be “updated” – arguing that too many Australians now qualify and suggesting that many lack the sophistication implied by their status. This is despite clear evidence that the failures ASIC so often cites – Sterling Group, Shield Master Fund, and First Guardian – were all retail schemes operating under a retail AFSL (Australian Financial Services Licence). Raising the wholesale bar would not have saved a single dollar or protected a “Mum and Dad” investor in these cases.

This is the fundamental flaw in ASIC’s position: it continues to invoke examples of retail fund collapses to justify restricting access to wholesale investment opportunities. The result is a regulatory bait-and-switch – misdirecting concern about failed retail governance into policy that punishes a separate, well-functioning wholesale sector.

Australia’s wholesale investment landscape is not the Wild West. Licensed fund managers operating under wholesale AFSLs are subject to rigorous obligations, including licence conditions, fiduciary duties as trustees, AML/CTF compliance, breach reporting, and restrictions on promotions and fundraising. These are professionals managing transparent structures for clients who qualify under long-established income, asset, or product value tests.

The parliamentary committee, chaired by ALP senator Deborah O’Neill, recognised this. It also acknowledged that raising the bar would have serious consequences – particularly for angel investment, venture capital, SMEs, commercial property syndication, and private credit. These are the sectors where innovation happens, where small businesses grow, and where wealth is built outside the grasp of large institutional players.

Indeed, the Financial Services Council – a vocal proponent of a $5m net asset test – is composed largely of firms that operate retail funds. If their recommendation was implemented, most Australians currently investing in wholesale property, private credit, or early-stage companies would be locked out. Where would their money go? To FSC members. The self-interest is obvious.

Wholesale investors are typically doctors, pharmacists, engineers, and small business owners – people who have built wealth and want direct access to higher-yielding alternative investments, not more layers of intermediation. The idea that these investors need to be “protected” from participating, for example, in a commercial office syndicate in Townsville or a retail centre in Mackay is condescending and wrong.

We’ve seen this movie before. In both the UK and the US, regulators considered raising wholesale investor thresholds. Both backed away.

In the UK, changes introduced in late 2023 were reversed just four months later due to unintended damage to start-up and VC ecosystems. In the US, the SEC declined to lift the bar after its advisory panel warned of capital market distortion. Australia should take the same path.

The deeper issue here is cultural. Our regulators – including ASIC, APRA, Austrac, and even the ATO – have become increasingly risk-averse and enforcement-centric.

Their mindset is not “How do we enable productive investment?” but rather “How do we avoid headlines at any cost?”

This has real-world consequences. Regulatory overreach doesn’t just slow down paperwork – it deters entrepreneurship, restricts access to capital, and shifts the balance of power further toward the institutional end of town. It harms productivity and widens inequality.

If Jim Chalmers is serious about fixing Australia’s productivity problem, we need a circuit breaker. One starting point could be to recalibrate the role of regulators so that economic impact and competition are core parts of their mandate – not afterthoughts.

There is a case for improving the wholesale investor framework, but it must be based on evidence, consultation, and balance. Better guidance on the “sophisticated investor” test? Certainly. A review of whether thresholds remain fit for purpose? Perhaps. But the wholesale market is not broken, it does not need fixing – and we certainly don’t need more regulatory red tape in this space.

Ironically, at the June 4 media conference Mr Longo also remarked:

“Australia has really made a virtue of regulatory complexity,” adding, “I worry about it a lot … it affects our productivity.”

On that point, Mr Longo, we wholeheartedly agree.

Australia’s economic future depends on innovation, competition, and productive risk-taking. That future will not be built if our regulators treat capital formation as a problem to be controlled, rather than a solution to be enabled.

Campbell Newman is a former Queensland premier and chairman of Arcana Capital