Imaginative use of undertakings power by FMA

The Financial Markets Authority (FMA) has made imaginative use of its power to accept enforceable undertakings to achieve the equivalent of a banning order against a New Zealand couple for breaches which occurred in Australia.

The route the FMA took delivered a quicker result than the FMA could have achieved by seeking a banning order through the courts, although this would have been the more conventional path.

Mr and Mrs Hobbs – who live in Nelson – were found liable for serious financial misconduct in relation to their operation of 14 investment funds administered in Australia.  The Supreme Court of New South Wales made banning orders against the Hobbs.

The effect of the FMA’s intervention is that the New Zealand public now has the same protections as has the Australian public.

The context

The FMA has broad powers to accept written undertakings from individuals or companies over which it has jurisdiction.  Commonly a party that offers the FMA an enforceable undertaking has acknowledged non-compliance with securities law or financial markets legislation, and agreed to take specific steps to address the breach.

Undertakings may include an agreement to pay compensation or penalties.  Breach of an undertaking entitles the FMA to seek relief from the High Court.

The FMA could have gone for a banning order against the Hobbs under the Financial Markets Conduct Act 2013.  A New Zealand Court has the power to make a banning order against a person who has been banned from carrying out activities overseas which are similar to providing financial adviser services and broking services in New Zealand.

Instead, the FMA used its power to accept undertakings to achieve a very similar outcome.  Mr and Mrs Hobbs have given undertakings that they will not act as directors or promotors of a company in New Zealand, or provide financial adviser or broking services here.

We don’t know whether this was part of an investigation into the activities of the Hobbs in New Zealand or simply a response to the Australian judgment.  What it does show is that developments on the other side of the Tasman will often have implications here, and that the FMA is prepared to be proactive in order to provide efficient protection to New Zealand investors.

Given the very similar laws in New Zealand and Australia on this point, this is a relatively non-contentious use of the undertaking provisions.  The position may be less clear in those situations where there is a greater degree of divergence between New Zealand and overseas law.

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