New Zealand: FMA toughens approach to misuse of Financial Services Provider Register (FSPR)

Financial service providers wanting to go on the Financial Services Provider Register (FSPR) will need to provide more than mere administrative services from New Zealand.

This is part of a new tougher approach from the Financial Markets Authority (FMA) as it seeks to eliminate misuse of the register and protect investors and New Zealand's reputation.

Areas of concern

Features which may raise FMA concerns are where:

• the applicant's shareholders and directors are mostly overseas and New Zealand-based directors have a passive role in the company or limited knowledge of its business operations
• the registered office is a serviced or virtual office with administrative staff only
• the applicant's dealings with the FMA indicate a lack of understanding of the definition of financial services (under the Financial Service Providers (Registration and Dispute Resolution) Act 2008), and
• the FSPR registration has been outsourced to a company formation agent or service provider (this causes concern because it may be an attempt to conceal the applicant's beneficial ownership).

A form of "pre-approval" from the FMA would allow FSPs to ensure they meet requirements for FSPR registration before they proceed.

FSP administration in New Zealand not enough

All three challenges against FMA ordered removal from the FSPR by overseas owned companies have failed in Court. In each case the FMA was able to argue successfully that FSPR registration gave the impression that the financial services were provided from New Zealand when, in fact, all that occurred in New Zealand were administrative functions.

Uses of the FMA's exercise of its deregistration power include:

• Vivier and Company Limited, which did not accept any New Zealand clients and provided administrative functions from a small office in New Zealand
• Innovative Securities Limited, which at the time employed only three administrative staff in New Zealand and had no New Zealand clients, and
• Excelsior Markets Limited, a Pakistani-owned foreign exchange firm, which provided " most, if not all" of its financial services from outside New Zealand.

Since 2015, the Registrar has referred 93 FSPR applications to the FMA. Just 19 of them were allowed.

Shift of focus away from FSPs place of business

The Financial Services Legislation Amendment Bill proposes (as we submitted it should) to replace the "place of business" test in the current Act with a requirement that FSPs register if they are in the business of providing financial services to persons in New Zealand (or required to be licensed or registered under any other Act).

If you would like advice on an FSPR application or how FSPR reforms will affect your business, please contact any of the individuals featured below.

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The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.