Praising the intent of the
"Sophisticated Investors Protocol" to reserve high-risk investments to those qualified to competently act in response to their risk factors;
Finding, however, that the resolution is worded in such a manner that it fails to achieve its goals to any substantive degree, instead hindering the ability of the World Assembly to enact stronger protections to this end;
The World Assembly notes the following facts.
- Section 1 requires member nations to "define, if desired in writing by the said investor, to be 'sophisticated'" should an investor meeting Sections 1a - 1c request that in good faith, without specifying that member nations define the investor themselves as sophisticated, as presumably intended. This subtle flaw in the resolution's wording means that member nations merely have to inform such investors of the definition of "sophisticated" on request. This renders the provision ineffective in its goal, ie to require member nations to classify investors meeting Sections 1a - 1c as sophisticated.
- In addition to rendering Section 1 ineffective in its goal, this drafting error also harms freedom of information: under the resolution, member nations need not publish their definition of "sophisticated", they must only provide their definition to those wealthy (inter alia) enough to meet Sections 1a - 1c. Knowledge of the law should not be limited to the rich.
- In a member nation which is already publishing its definition of "sophisticated", the process of verifying that an investor indeed meets Sections 1a - 1c, and then providing them with the publicly accessible definition, is an unnecessary waste of resources. Member nation resources are not infinite to be spent on such frivolity as personally sending rich people publicly available definitions.
- Section 2 contains a number of ambiguities which severely hinder interpretation of the resolution. Most importantly, it is unclear as to whether the "classified as a sophisticated investor based on the aforesaid criteria" qualifier applies to the member nation or to the investor. The presumably intended interpretation is that it applies to the investor; however, this interpretation would lock nearly all investments behind a requirement of being "sophisticated" inasmuch as there is any risk whatsoever that a cent more than the value of the original investment is lost. An individual who is not "sophisticated" would be prohibited from placing one dollar in a savings account with interest due to the possibility of a bank failure which cannot be covered by deposit insurance.
- A member nation can also reasonably interpret the qualifier as applying to "a member state". This avoids the situation of active harm, however it also means that a member nation need only classify itself as a sophisticated investor in order to freely make available the instruments and products specified in Section 2, regardless of whether they are being provided to sophisticated investors. This, again, renders Section 2 nugatory.
- As the final blow to its effectiveness as a resolution, the target's Section 3b prevents a member nation from prohibiting sophisticated investors from investing with a particular institution in another member nation. This includes institutions based in non-compliant, genocidal member nations, as well as a member nation one is actively at war with. "Administrative Compliance Act" requires member nations to fully sanction all trade with member nations which refuse to pay fines for non-compliance; member nations are unable to enforce this effectively if they are forced to permit a portion of investors to invest with such member nations' institutions.
- The only way for a member nation to simultaneously avoid the issues in Sections 3b and 2 is for that nation to classify itself and no other entity as a sophisticated investor. Under this interpretation, the resolution would have very little effect on any member nation.
For the above reasons, the World Assembly strikes out the "Sophisticated Investors Protocol".
