Background
On 18 September 2025, the High Court issued its ruling on questions put to the Court by the Financial Markets Authority (FMA) to provide clarification on the “eligible investor certificate" regime under the Financial Markets Conduct Act 2013 (FMCA).1
The eligible investor certification process allows investors to self-certify as “eligible investors”, making them a category of wholesale investor, meaning an offer and issue of financial products does not require a product disclosure statement. The FMA raised concerns about misuse of the regime, particularly where certificates lacked meaningful evidence of investment experience.
We summarise the key findings as follows.
Key Findings:
- Eligible Investor certificates must state the grounds for certification, but do not need to provide detailed or objectively sufficient evidence of experience.
The Court confirmed that the eligible investor regime is one of "self-certification with the added protection of the confirmation process". The Court found that clause 41(1)(b) of Schedule 1 of the FMCA requires investors to state the grounds for certification – namely the basis on which the investor has given the certification, but not to provide detailed or objectively sufficient evidence. However, the grounds must not be obviously "incapable of supporting the investor's certification". The Judge did not accept the FMA’s argument that certificates must include comprehensive details of prior investment experience. - The confirmation provided by a financial adviser, statutory accountant or lawyer (Confirmer) serves as an important safeguard but is not an independent third-party verification.
Confirmers are not required to positively assess the investor’s experience. All that is required for the confirmation of the investor's self-certification is that the Confirmer, having regard to the grounds stated in the certificate, has no reason to believe that the certificate is incorrect, or that a further investigation is required as to whether the certification is incorrect. That is a lower threshold than believing on reasonable grounds that the certification is correct. If the grounds stated in the certificate are not obviously insufficient but appear limited, the Confirmer may request additional information from the investor and, if satisfied, proceed to confirm the certificate.
Additionally, the Court emphasised that Confirmers have an obligation to ensure that the investor has been properly informed of the consequences of certifying as an eligible investor, and it is an offence to knowingly provide a false certificate. This is reflected in clause 43(1)(a) of Schedule 1 of the FMCA.
Certification is intended to be a “serious and solemn process” undertaken by the investor, reinforced by the Confirmer’s obligation to ensure the investor understands the consequences and potential offences involved. The Confirmer is not required to believe the certificate is correct but must simply have no reason to believe it is incorrect or that further information is necessary to determine whether it is incorrect. - Offerors are required to check formal validity of eligible investor certificates, but not substantive experience of the investor.
The Court found that the offeror must confirm that the certificate meets the formalities required by the FMCA, and that the grounds are not on their face incapable of supporting the investor's certification as an eligible investor. - If a certificate is invalid or cannot be relied upon, and the investor is not otherwise a wholesale investor, full disclosure is required.
Discussion
The FMA is clearly concerned that the eligible investor exclusion is being used in circumstances when it considers it should not be. The FMA's submissions indicate that the FMA was really looking to the Court to apply a higher standard here. Its submissions sought to require that a valid certificate must expressly describe the investor's previous experience in acquiring or disposing of financial products and experience which tends to enable the investor to assess the merits of the offer at issue, including the risks of the financial products, their own information needs and adequacy of information provided to them. The FMA also argued that the Confirmer could not fulfil its obligation in the absence of articulated experience in acquiring or disposing of financial products and reasoning as to how that experience leads the investor to assess the matters required by the certification regime.
In our view, the FMA is right to have concerns as to how the eligible investor self-certification regime is operating. Clearly the regime is important in terms of facilitating the raising of capital from investors who are suitably sophisticated/experienced to be able to take the risk of the investment without requiring the formal disclosure of a product disclosure statement. The concept also has some equivalence to exceptions from a prospectus requirement in other overseas jurisdictions such as the "accredited investor" exception in the United States of America. Reliance on the regime also allows directors of the issuer to avoid the primary liability that directors are subject to under regulated offers requiring a product disclosure statement.
However, the verification steps and process for certification does appear to have led to susceptible investors, who do not appear to truly meet the criteria, self-certifying as eligible and suffering investment losses they are not able to bear. There are well publicised examples of unsavoury practices, including the offeror walking the investor to an adviser to confirm the self-certification.
That said, in light of the wording in Schedule 1 of the FMCA and the legislative history, the Judge does not appear to have had any room to impose a greater standard than the FMA was seeking. In this regard, the Judge particularly acknowledged that the process may have "fallen down" in some instances but noted that any need to "re-balance" the approach to the regime or prescribe additional information required in the certificate is a matter for Parliament, not the Court.
The issue should not be viewed in isolation either – the fair dealing provisions in Part 2 of the FMCA continue to play an important role. It is conventional to have regard to the wholesale nature of the investors when preparing offer documentation – "ma and pa" type investors who certify as eligible almost certainly have greater disclosure needs, likely requiring greater information on the business of the issuer and nature of the risks they face from the investment, than institutional or government investors, in order to avoid the risk of them being misled.
Given the judgment, we will need to see if the FMA seeks amendments to the FMCA or regulations in light of the expectations reflected in its submissions.