By Gareth Vaughan
Here are two numbers for you; 83 and 340.
The first, 83, is the number of countries and territories from which the Financial Markets Authority (FMA) has received enquiries about New Zealand financial service providers.
The second, 340, is the number of misconduct reports the FMA has received from overseas about companies registered on NZ's Financial Service Providers Register (FSPR).
The FMA was formed in 2011 and regulates NZ's capital markets and the financial services sector. It does not, however, regulate companies registered on the FSPR. (See background on the FSPR and the problems with it towards the bottom of this article).
The numbers come from answers to questions interest.co.nz asked the FMA.
In terms of the 83 countries and territories where enquiries have come from, the FMA says there could be more.
"Contact details are not always provided and we do not require them. Where we could identify the location of a source, we have done, hence the list of countries below may be incomplete," an FMA spokesman said.
"Between 2011 and the end of 2016, we received an estimated 360 general enquiries and 340 misconduct reports from overseas about a subject registered on the FSPR."
In response to a question asking how many of the enquiries related to unlawful activity by a NZ financial service provider, the FMA spokesman said the regulator does not know.
"It is not possible for us to say whether activity was lawful or unlawful. We do not regulate companies on the FSPR. Since 2014, the FMA has the power to direct the [Companies] Registrar [Mandy McDonald] to deregister companies and has done so where they fail to provide a financial service to New Zealanders or where we feel their only objective is to give the impression that they are regulated in New Zealand."
Here's the list of countries and territories provided by the FMA of where enquiries have come from.
|Brazil||Indonesia||Papua New Guinea||United Arab Emirates|
And in the map below the dots represent where the 83 countries and territories are located.
How did it come to this?
The FSPR came out of a 2006 government review of financial products and providers that recommended the introduction of a comprehensive register of financial service providers. Among other things, this was designed to help satisfy NZ’s international obligations under the recommendations of global anti-money laundering overseer the Financial Action Task Force (FATF). These required the licencing or registration of all financial institutions to ensure effective monitoring of anti-money laundering and countering terrorist financing obligations.
Since December 2010 anyone providing a financial service, such as insurers, banks, lenders and financial advisers, has been required to be registered on the FSPR, operated by the Companies Office. Similar to a telephone directory, the FSPR records the name, address and financial dispute resolution service membership of the provider, along with the services it's registered to provide and any licences it may have. There are about 12,000 financial service providers, both companies and individuals, registered on the FSPR. Of these, the Ministry of Business, Innovation & Employment (MBIE) estimates a couple of thousand are registered only for services that don't require licensing.
Currently a firm can register on the FSPR if it has a place of business in NZ, regardless of where in the world its financial services are pitched or provided. This means entities can, and do, set up superficial operations in NZ by leasing an office and perhaps employing a person to provide back-office services. These firms register to provide financial services that don't require licensing in NZ, such as foreign exchange, or forex, services. There's no pre-vetting by a NZ regulator, and they don't offer financial services within NZ. These entities can, however, use their NZ registration overseas to give a false impression that they are regulated in NZ and trade off this country's good name.
As MBIE has put it, "Registration on the FSPR allows these firms to misrepresent to overseas customers that they are licensed or actively regulated in New Zealand, and enables them to enjoy a lesser degree of scrutiny overseas than might otherwise be the case. The public often interprets 'registration' on the FSPR to mean that an entity is actively regulated in New Zealand."
'Drivers licences for people who can go and drive anywhere in the world, apart from NZ'
Dozens of overseas operating companies have deliberately misled customers into believing they're fully fledged "licensed" and "regulated" NZ financial service providers, with a significant NZ presence, when this isn't the case. And overseas regulators have been confused by these NZ "registered" entities operating in their jurisdictions. These issues have been covered extensively by interest.co.nz with our stories here.
The inability, or unwillingness, of NZ authorities to do anything about the overseas actions of some of these NZ registered entities has damaged NZ's reputation. As David Mapley, a Swiss-based Brit who found himself caught up in nefarious activity by NZ financial service provider London Capital NZ Ltd, put it; "You [NZ] are giving drivers licences to people who can go and drive anywhere in the world apart from New Zealand and cause whatever carnage and crashes, but it's not your remit, you don't care."
In 2015 MBIE acknowledged misuse of the FSPR "creates a risk to both New Zealand's reputation as a well-regulated jurisdiction and to the reputation of legitimate New Zealand financial service providers." MBIE has also pointed out other similar jurisdictions don't have the type of problem NZ has, or at least not to the same extent, because typically they licence all types of financial service providers.
In Australia, for example, all entities that provide financial services are required to obtain an Australian Financial Service Licence. But MBIE argues NZ doesn't license all financial service providers because licensing can impose significant costs, create a barrier to entry and reduce competition.
The clean up plan
Against this backdrop, the Government's third attempt to clean up the FSPR following an MBIE review, is underway. The details of the Government's clean up plans are here. (MBIE is calling for submissions by 5pm on Friday, March 31). And my view, that the Government should simply abolish the FSPR because NZ doesn't even need it, is here.
Meanwhile back at the FMA, the spokesman said the FMA has received "a noticeable increase in enquiries and misconduct reports" from overseas since it was granted powers to direct the removal of companies from the FSPR in 2014.
"In 2014, there was an estimated 150 misconduct reports or enquiries coming from overseas where the subject was on the FSPR. In 2015, that rose to an estimated 260. In 2016, that fell back to an estimated 210. This reflects broader trends in our work on the FSPR. Since 2014, the volume of work considering fresh applications for registration on the FSPR has been consistent. In the year to the end of June 2015, we directed the registrar to deregister 39 entities. A year later, that fell to 26 entities and in the six months between July and December 2016, we directed the registrar to deregister four entities," the FMA spokesman said.
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