We continue to receive queries from individuals and businesses (often based overseas) who are unsure whether their activities require them to be registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) and/or licensed under the Financial Advisers Act 2008 (FAA). Often the queries relate to non-core business activities and the uncertainty is exacerbated by the wide definitions and the relatively complex scheme of the legislation.
We have illustrated two common types of query in the scenarios below:
Scenario 1 - Overseas company: A company incorporated and based in Singapore that has no office in New Zealand provides specialist advice to sharebrokers in New Zealand relating to securities listed on the Singapore stock exchange. The company wants to know whether it needs to register under the FSPA and/or be licensed under the FAA.
Response: The company falls outside of the territorial scope of the FAA unless it is required to be licensed under the FAA (FSPA section 8) because it does not have a place of business in New Zealand and it is not ordinarily resident in New Zealand. The company will be able to provide its services to "wholesale clients" without holding a licence under the FAA (FAA section 20(d)). Most sharebrokers will fall within the definition of "wholesale client" in the FAA. Accordingly, the company in this case will not need a license under the FAA and will not need to register under the FSPA.
Scenario 2 – An individual: Mr D, who has interests in several property development companies, is concerned about conversations he regularly has with business associates and friends. These conversations often involve sharing information about investment strategies, share market tips and other investment "war stories". Mr D and his associates sometimes act on the investment tips they share, although none of them expect to receive any payment or other compensation from each other. Mr D is not an authorised financial adviser under the FAA and wants to know if the conversations might breach the FAA.
Response: The definition of financial advice in the FAA is broad and might encompass the provision of financial information that could be expected to be shared in the course of the conversations of concern to Mr D. However, the provision of financial advice is only a "financial adviser service" if it is provided "in the ordinary course of business". Further, giving out financial information is not a financial adviser service if it is only an incidental part of another business that is not otherwise a financial adviser service.
In Mr D's case, the conversations are probably not happening in the "ordinary course of business" of his development projects. Even if they were, it is most likely that they are at most an incidental part of that business. On this basis, the conversations are probably not a "financial adviser service" and no licence is needed.
While registration under the FSPA for those who provide a financial service is not an onerous task, failing to comply with that Act carries the risk of a fine of up to $300,000 for companies and for individuals a fine of up to $100,000, or imprisonment of 12 months. The maximum penalties are less severe for providing a financial adviser service without a licence (fine of up to $10,000 for individuals and $50,000 for companies), however the licensing process and ongoing compliance requirements are more significant.