On 18 September 2025 the High Court released its highly anticipated decision regarding the Financial Markets Authority’s (FMA) “eligible investor” case stated application. 

In this Financial Law Insight, we dive into the judgment, the reasoning of Fitzgerald J, and where matters now stand in relation to wholesale investor exclusions.

Setting the stage

Wholesale investors generally have investing experience or are of such size and scale or regulatory standing that they do not require the protections usually afforded to retail investors. This includes investment businesses, the fact a person or entity is ‘large’, or meets investment activity criteria. Such investors are assumed to have the means to assess the investment proposition and can bear the risk.

Sitting alongside the bright-line safe-harbour tests for wholesale investor status is the concept of ‘eligible investors’. In essence, an investor can self-certify as “eligible” and therefore be considered wholesale and not need to be provided with disclosure (which would otherwise be required under Part 3 of the Financial Markets Conduct Act 2013 (FMC Act) for a regulated “retail” offer). Offers that are limited to wholesale (including eligible) investors don’t need registration and can be offered by an unlicensed manager.

Walking the tightrope

Until a few years ago, the application of the wholesale investor exclusion in Schedule 1 of the FMC Act had not caused much of an issue. Then in October 2022 the FMA muddied the waters with the release of its Thematic review of use of the wholesale investor exclusion (Thematic Review Report).

The Thematic Review Report asserted that the experience stated by an investor on their eligible investor certificate had to be directly relevant to the investment in question. And that offerors needed to ensure that the stated experience was relevant.

This approach conflicted with the general understanding of how eligible investor self-certification worked under the FMC Act.

In light of the FMA’s view we commented at the time that offerors and those “confirming” such certificates (lawyers, accountants, and financial advisers) may need to consider taking a more cautious approach than they might previously have done.

Ineligible inaction

In its Thematic Review Report, the FMA identified undesirable practices where investors had certified themselves as eligible but cited incomplete or vague reasons which were not capable of supporting the matters certified such as “owning a rental property” or “investments fell due”. Such certificates were inadequate and should not have been confirmed.

In light of these shortcomings, the FMA issued warnings to several property investment offerors (including Du Val Capital Partners Limited and Du Val BTR GP Limited). Most of the warnings noted that the offerors may have failed to give disclosures to investors as required by Part 3 of the FMC Act, because they relied on the wholesale investor exclusion in circumstances where they were not entitled to.

This meant the FMA could have stepped in and given investors a possible out. It did not do so. Of course, the regime is not designed to provide a safety net for risky or failed investments. And perhaps Du Val’s downward spiral would have happened regardless. But there was a point where some intervention was possible. Perhaps at the conclusion of the Du Val saga the FMA might reflect on alternative and earlier action it could have taken.

The case stated

A couple of years after the release of the Thematic Review Report, the FMA filed a case stated proceeding to the High Court on 18 December 2024.

That “case stated” asked for the Court’s opinion on the use, confirmation, and acceptance of eligible investor certificates. We suspect that this application was largely driven by matters relating to the Du Val saga, alongside more general doubts and criticisms that had been raised by the sector about the validity of the FMA’s position and its implications.

The case stated application posed four questions. These were:

1. Does an eligible investor certificate need to expressly describe the previous experience that a person has in acquiring or disposing of financial products and what aspects of that experience should be considered acceptable?
2. For an offeror to rely on an eligible investor certificate, does the offeror need to be satisfied that the certificate is valid and/or based on such stated grounds that the investor could readily make an assessment of financial products generally as well as the financial products involved in the specific transaction.
3. If the answer under 2 is yes, is an offeror permitted to rely on information which is not contained in the eligible investor certificate to undertake either assessment?
4. If an offeror makes an offer of financial products to an investor in circumstances where it is not permitted to rely on the investor’s ‘eligible certification’, is disclosure required to be given to that investor under Part 3 of the FMC Act?

High-wire moves

Unlike a typical court case, case stated procedures do not feature opposed parties. Instead, the court is asked to help clarify points of law. Initially the FMA could not rustle up anyone to present an alternative view. Fortunately, Angel Association New Zealand incorporated and New Zealand Private Capital Association Incorporated (together the “Intervenors”) joined the show.

The Intervenors were given leave by the High Court to make submissions, given their respective roles in representing companies which rely on eligible investor certificates. The Intervenors acted as "contradictors."

The judgment

Helpfully, Fitzgerald J’s decision works through and summarises the legislative history of the regime and the policy rationale for eligible investor self-certification. That covers the journey from the old Securities Act to reform discussions and the development of the FMC Act regime. 

Fitzgerald J concludes that the history of the certification regime showed Parliament deliberately taking a step away from formal “third-party certification” toward simpler confirmation. The eligible investor certificate was not intended to impose a high evidentiary hurdle for participants to clear, but the grounds used needed to be plausible, with the confirmation process providing an additional check.

Issue one – must eligible investor certificates include detailed experience?

Fitzgerald J concluded that eligible investor certificates must include grounds for the certification, but they do not necessarily need to include the detailed investment experience of the investor. However, the grounds included must be capable of supporting the certification and of convincing the confirmer (lawyer, accountant, or financial adviser) that the certificate is “correct”. Requiring further checks to be made by a confirmer would make self-certification redundant.

A certificate that uses grounds that are not relevant to the investor’s investment ability or experience, but that is subsequently ‘confirmed’, demonstrates that the confirmation process has failed (rather than undermine the eligible investor certificate concept as a whole).

If the grounds included in the certificate cause the confirmer to suspect that the certificate is incorrect, then that confirmer can fulfil their obligation under the FMC Act by declining to certify. Fitzgerald J’s “I used to be a trapeze artist” or “we have other investments and one of our investments fell due” examples illustrate this point.

And of course, certificates cannot, and should not, be confirmed where they contain no grounds at all.

Issue two – must offerors assess the sufficiency of the investor’s experience?

Both the FMA and the Intervenors agreed that the offeror must be satisfied that the eligible investor certificate is formally valid. However, Fitzgerald J concluded that this is as far as the offeror’s obligations extend.

Contrary to the FMA’s submissions, there is no positive duty on an offeror to ensure an investor’s grounds are sufficient proof of relevant investment experience.

As per the legislation, an offeror can only invalidate an eligible investor certificate where the offeror knew that the investor was not an eligible investor for any reason or the offeror was aware that the confirmer was an associated person of the offeror.

Issue three – can offerors rely on information outside the certificate?

The answers to question two was “no”, so question three did not need to be substantively considered.

For completeness, Fitzgerald J stated that the offeror’s assessment is confined to the information set out in the eligible investor certificate itself. She reasoned that the statutory scheme envisages that the only mechanism by which an investor becomes an eligible investor is by way of valid certification. Expecting an offeror to consider information outside of a certificate presented to it would undermine the intended simplicity and certainty of the regime.

Issue four – is disclosure required under Part 3 of the FMC Act if the certificate is invalid?

Both the FMA and the Intervenors agreed that if an offeror makes an offer of financial products to an investor in circumstances where it is not permitted to rely on that investors’ eligible investor certificate, and the investor is not otherwise a wholesale investor, full disclosure for a regulated “retail” offer is required under Part 3 of the FMC Act.

Confirmations falling down

What comes through strongly in Fitzgerald J’s decision is that it is the confirmation process which is falling short.

A trapeze artist’s certificate should not be confirmed, unless the grounds stated also confirm that they have relevant experience. There’s no reason a part-time trapeze artist might not also be (say) regularly trading in the share market and investing in a number managed funds, to the extent they feel comfortable with the risk involved in a non-retail offer.

But in the examples cited by Fitzgerald J, certification should never have been confirmed. The fact that inadequate certificates get confirmed reflects a failure in the confirmation process, and not necessarily in the statutory framework. This is a compliance gap and not a legislative one.

The FMA has previously indicated it would consider referring rogue confirmers to their relevant professional bodies. We have not heard anything further on this threat. There has been no public announcement we are aware of to indicate the FMA has followed through on that consideration.

Back to where we started

While the judgment endorses what was the status quo – offerors do not have a positive obligation to look behind eligible investor certificates – offerors must reject certificates that are incapable of supporting the required experience. So it is not a case of our trapeze artist being exposed to freefall: a safety net (albeit a very small one) needs to be provided by the offeror to catch those who clearly should not be in the ring.

The risk, if the FMA did crack the whip, is severe. Having just one retail investor in the wholesale investor cage means the offer as a whole becomes a retail one.

This is costly for the offeror, and potentially for all other investors, given the resulting compliance requirements – not just disclosure, but possibly licensing, governing documents, and financial reporting. Re-classification from wholesale to retail would also trigger investor withdrawal rights.

Conduct overlay

The fact an offeror is able to rely upon a pretty skinny eligible investor certificate doesn’t mean it should do so, or that it is the right thing to do. Despite the judgment, it remains open to offerors to apply a conduct lens over eligible investor certificates – even those that have been confirmed – and take a view that they are not prepared to act on ones that do not provide sufficient detail in their grounds, given the risks involved or complexity of the particular offer.

This may well be the prudent approach to take, even if not strictly required. Then again, the FMA has also told off participants for being unduly conservative...

Future reform, again?

Given the FMA’s apparent discontent with the status quo and its ever expanding consumer protection bent, there is potential for the regulator to re-muddy the waters and seek regulatory reform.

This prospect was highlighted by Fitzgerald J noting that if the FMA was unhappy with the current state of play, it should go to Parliament. The case-stated procedure was not well-suited to assessing policy matters and the concerns raised.

Alternatively, the FMA could just leave things as they are. The clear reasoning of the judgment shows that considerable thought was put into the intentional design of the wholesale investor carve outs. That approach would be consistent with the FMA’s media release welcoming the judgment, noting the Court’s findings ‘provide clarity’.

The FMA needs to walk the line – to both promote and protect. It cannot focus on one to the exclusion of the other. The irony of a regulator creating uncertainty where previously there was none, and then seeking clarity on its position only to find that it was the one who had got it wrong, will not be lost on the market.

Start a conversation

If you would like to discuss any aspect of the judgment or the wholesale investor regime or any other financial services matter, please contact David Ireland on +64 4 498 0840, Catriona Grover on +64 4 498 0816 or Mark Schroder on +64 9 375 1120 or email the team at bankingandfinancialmarkets.nz@dentons.com 

This article was written with the assistance of Law Graduate, Lydia Joyce, in our Financial Markets team.