Foreign 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 the tougher approach identified in the last report by the Financial Markets Authority (FMA) as it seeks to eliminate misuse of the register and protect investors and New Zealand's reputation.
FMA's 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 customers are predominantly based overseas
- 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).
We suggest a form of "pre-approval" from the FMA would allow FSPs to ensure they meet requirements for FSPR registration before they proceed with establishing a New Zealand-based financial services business.
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 registration "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 retail clients in New Zealand (or provide wholesale services from a place of business in New Zealand, or are required to be licensed or registered under any other Act). This change would ensure that foreign financial service providers are regulated when they are required (and able) to be registered, preventing any misleading impressions.