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The professional bodies have raised concerns about ASIC’s proposal to impose new penalties for the misclassification of wholesale investors by accountants.
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Government cautioned on penalty proposal for accountants’ certificates
19 November 2024
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The three major accounting bodies and the SMSF Association have renewed their calls for the government to abolish accountants’ certificates and have expressed concerns about ASIC's proposal for new penalties in this area.
In a supplementary submission to the inquiry into wholesale investor tests, the professional bodies noted ASIC's proposal to introduce new penalties for accountants who have issued incorrect accountants' certificates.
ASIC stated in its submission that the introduction of penalties and other meaningful sanctions into the primary legislation would help "improve practices and deter misconduct in relation to the certificate mechanism".
This would include accountants who falsely or negligently certify that a client has met the applicable assets or income tests when they do not, the corporate regulator said.
The professional bodies stressed in their submission that they would like to instead see the government abolish accountants' certificates rather than prescribe new penalties and sanctions.
"As we have expressed in our previous submission to this inquiry we are of the view that so-called accountants’ certificates should cease to exist," the bodies said.
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"If the committee were to reject this recommendation and to propose that penalties should be imposed on accountants, as suggested by ASIC, then this area of the law must be significantly reformed and simplified so that accountants, product providers, financial advisers and investors can easily understand an accountants’ obligations and responsibilities."
The joint bodies cautioned the government against increasing ASIC's remit regarding accountants’ certificates as they are not classified as financial products or services.
"These certificates are not financial products or services and many accountants in public practise are not licensed to provide financial advice," the submission said.
"When signing these certificates, accountants are offering an opinion about a client’s income and/or net worth. Accountants are not asked to offer an opinion about a client’s education, training or experience to be classed as a wholesale investor."
The submission explained that accountants without an AFSL cannot offer a view about a particular financial product and its suitability to a client's circumstances.
The joint bodies have also emphasised that only a small percentage of the Australian population should be ineligible for retail client protections under the Corporations Act.
"We explained in our submission to the inquiry that the thresholds should be increased. The numbers that we have proposed are based on our analysis of changes in the consumer price index, average weekly ordinary time earnings, Australian median house prices, ASX 200 All Ordinaries index and the ASX 200 All Ordinaries Accumulation Index between 2001 and 2024," the bodies said.
The thresholds are currently $250,000 for income and $2.5 million for net assets for wholesale investor and wholesale client tests.
"There have been no adjustments to these wealth thresholds for over 20 years, in the last five to ten years individuals who are currently considered to have modest wealth have invested most of their life savings into products specifically designed for wholesale investors that have subsequently failed, [such as Mayfair]," the submission said.
"This has led to some obvious poor consumer outcomes. We therefore consider increases to these wealth thresholds to be vitally important."
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