The Financial Markets Authority (FMA) is appealing a High Court ruling that its deregistration of Vivier and Company cannot not stand as it is against the principles of natural justice.

We look at the decision and canvass Chapman Tripp’s submissions to the current review of the Financial Service Providers legislation, including the registration system.

The case

The High Court in Vivier and Company Ltd v Financial Markets Authority had allowed Vivier’s appeal – the first lodged under the FSP regime – on the basis that the FMA had:

  • insufficient evidence to make any factual findings under the Financial Service Providers (Registration and Dispute Resolution) Act, and
  • breached natural justice in failing to disclose key facts behind the deregistration, in particular an overseas article suggesting Vivier had been accused of tax fraud in Ireland.  The FMA did not include reference to this article in its notice to Vivier.

The FMA is required to disclose all relevant information behind a decision to deregister and must provide the FSP with a cogent and clear explanation of its reasons – standards the Court found were not met in this instance.

The Court also considered it insufficient for the FMA to deregister an FSP in sole reliance on the fact that it does not provide services in or from New Zealand.  By law, FSPs with a place of business in New Zealand must be registered even if all their financial services are provided overseas.  Chapman Tripp’s commentary – FMA’s deregistration powers constrained by natural justice – is available here.

The appeal

The FMA’s appeal argues that the article was not the key reason for the deregistration and that the evidence was that Vivier used their office infrequently and had not filed financial documents for the year leading up to the FMA’s inquiry.

It has also drawn the Court’s attention to Excelsior Markets Ltd v FMA in which the High Court upheld FMA’s decision to deregister Excelsior Markets, a Pakistani-owned foreign exchange firm, on the basis that “most, if not all” of Excelsior Markets’ financial services were provided outside New Zealand.

In Excelsior, the Court agreed with Brewer J’s comments in Vivier that the purpose of the Act was to prevent offshore FSPs using the New Zealand registration system to improve their reputations by misrepresenting to consumers that they are licensed under and/or regulated by New Zealand law in such a way as harms or is likely to harm New Zealand’s reputation.

Excelsior Markets had acknowledged that “international investors were quite likely to see New Zealand as a well regulated investment environment and to see advantages to dealing with a New Zealand-based and registered financial service provider … this was seen as a competitive advantage in marketing terms”.

Our submissions

We believe a jurisdictional test which required the carrying on of business from within New Zealand is more appropriate as it would ensure entities must have a genuine connection to New Zealand before they could sustain a registration.

Our submissions also:

  • support the FMA having the power to direct the Registrar to deregister FSPs
  • oppose the strengthening of the FMA’s powers in a way which diverges from the fundamental question of whether an entity is entitled to be registered, and
  • support the requirement for overseas companies to disclose the status of their registration.

A copy of our submission is available here.