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Brief Counsel

FMA's full FSP register removal powers affirmed

19 May 2016

The Court of Appeal's confirmation that the Financial Markets Authority (FMA) was justified in deregistering Vivier and Company Ltd (Vivier) will strengthen the integrity of New Zealand’s Financial Service Provider (FSP) registration system to the benefit of the New Zealand financial sector.

It will make it easier for the FMA to strike off FSPs who do not provide services in or from New Zealand.

​The context

In response to concerns about “flag of convenience” companies registering here to claim New Zealand registration, and implied regulatory oversight, the FMA was given new powers in 2014 to deregister a foreign FSP where registration was likely to create a misleading impression of the extent to which the FSP was subject to New Zealand financial regulation.

FMA direction and High Court decision

The FMA directed last year that Vivier be de-registered because it became concerned that Vivier was not providing any financial services in or from New Zealand, and that its FSP registration might therefore mislead consumers, or damage the reputation of New Zealand’s financial markets.

It was an initial exercise of the FMA’s new power but was subsequently struck down by the High Court on the basis that the FMA did not have the evidence to justify the decision and had not observed the principles of natural justice.

The FMA appealed that judgment successfully.

The Court of Appeal decision

The question before the Court of Appeal was what evidential threshold must be applied before an FSP may be struck off, and whether it is sufficient that the FSP provides no services in or from New Zealand.
The Court of Appeal found that the FMA:
  • could de-register a firm if all or most of its services were provided overseas if the FMA concludes rationally and in context, that there is a risk of reputational damage to New Zealand or that consumers might be misled
  • did not need evidence specific to Vivier to establish that its registration would mislead consumers or damage the reputation of New Zealand’s financial markets, and
  • was entitled to rely on its expert knowledge of financial markets here and overseas when assessing whether a registration is misleading or damaging.
The Court of Appeal drew the threads together by stating that what is far more material than incorporation or possession of a place of business in New Zealand, is whether the FSP is providing financial services in or from New Zealand, and whether it is generating any associated financial activity in New Zealand.  If the FSP is not doing so, or cannot demonstrate any intention of doing so, then it will be difficult for it to maintain its registration as an FSP.

Chapman Tripp comment

The dichotomy the FSP legislation creates is that it requires companies to be registered here if they are resident or have a place of business in New Zealand, regardless of where they provide their financial services, but allows them to be deregistered if they provide their services overseas and promote their New Zealand registration to create a false appearance that they provide financial services in or from New Zealand.
The Court of Appeal’s decision addresses the dilemma created by this contradictory approach, by suggesting that foreign FSPs with a place of business here, but no relevant financial service activity in New Zealand, should:
  • not promote their New Zealand registration or promote themselves on the basis that, while they are registered here, they are not providing their financial services in or from New Zealand and are not regulated here, and
  • provide evidence of compliance with the requirements of a relevant offshore regulator, and any other information showing that they are substantial and reliable.
To us, it would be better if registration was required only if the FSP is providing financial services in or from New Zealand, and not on the basis of whether the FSP has a place of business here. 
Chapman Tripp’s earlier commentaries on this case are available here and here.
If you have any questions on this decision, or are contemplating providing financial services from New Zealand, please contact the lawyers featured.
Thank you to Tim Williams and Brendon Orr for writing this Brief Counsel.

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