FMA toughens approach to misuse of FSPR

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.

FSP administration in New Zealand not enough

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:

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.

If you would like advice on an FSPR application or how FSPR reforms will affect your business, please contact any of the individuals featured below.

Quick Links

FMA
Report on the Financial Services Provider Register22 September 2017
Chapman Tripp 
Brief Counsel on the Financial Services Legislation Amendment Bill's reforms to the FSPR9 August 2017
Submissions on reform to Financial Service Providers (Registration and Dispute Resolution) Act 20082 February 2016
Brief Counsel on the Court of Appeal's affirmation of deregistration of Vivier and Company Ltd 19 May 2016


 

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Related topics: Financial Markets Authority; Financial services regulation

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