By Gareth Vaughan
Financial Markets Authority (FMA) CEO Rob Everett says the Financial Service Providers Register (FSPR) is designed to benefit New Zealanders, not companies operating overseas, and he's hoping a government review of the FSPR provides clarity to help reduce the time and resource the FMA's spends on this area.
The Ministry of Business, Innovation & Employment (MBIE) is reviewing misuse of the FSPR. Anyone in the business of providing a financial service, such as a financial adviser, bank, lender or insurer, is required to be registered on the FSPR. However, as MBIE puts it, some offshore-controlled firms have sought to register on the FSPR in order to take advantage of New Zealand’s reputation as a well-regulated jurisdiction. Such entities then misrepresent that they are licensed or actively regulated in New Zealand when they are merely registered.
The FMA has powers to direct the Registrar of Companies to decline a registration or de-register an entity if it considers that registration creates a misleading impression about the extent the provider is regulated in New Zealand or will damage the integrity or reputation of New Zealand’s financial markets, or New Zealand’s regulatory arrangements for those markets. (See all our articles on this issue here).
Since taking on these powers in 2014, the FMA has used them to remove dozens of entities from the FSPR, and stop some others from even signing on. However, its decisions have been challenged with the FMA's deregistration of Vivier and Company being overturned in the High Court, and its deregistration of Excelsior Markets being upheld. The Court of Appeal is now looking at both cases.
Everett told interest.co.nz in a Double Shot interview the FMA was tying up time and resource tackling this issue, which could instead be time and resource spent regulating within New Zealand.
'We've been spending a lot of time and resource both in terms of scrubbing the register, deregistering or exercising our powers to direct the deregistration of those entities that we didn't think belong on there," Everett said.
"The way it has been set up a lot of those entities, in our view, don't need to be on the register but want to be. So once you take them off there is going to be challenge. We have the Appeal Court looking at two of those cases at the moment so I'm not going to comment on those."
MBIE's options paper sets out six options, or combinations of them, to tackle misuse. Everett said the main thing the FMA wants is clarity.
"What we're after is clarity about what the register's there for, and under what processes and what interpretation of the legislation we can operate to take people off or prevent people getting on the register if we think it will be misleading. And as you know we've been quite concerned that with such a big mandate now that we've got some of those pieces still landing, to be spending our attention on this isn't a great use of our resource," Everett said.
"The register was designed for New Zealanders to benefit people who were looking for financial service providers' details."
"So having entities that in our mind have little connection with New Zealand on there really doesn't make any sense at all. And where we start to get interactions with overseas regulators asking us for help on the assumption that we regulate those entities, that's not a great place for us to be when in fact we have no involvement with them at all," added Everett.
"And I think it endangers New Zealand's reputation overseas and with brand new legislation, brand new regulatory framework, brand new regulator, that's really not something we are comfortable with."
'What really is required in NZ for you to be on the register?'
The big issue, Everett said, is whether entities that have little or no real connection with New Zealand, that aren't offering financial services in New Zealand, should be on the register. Another issue is the confusion caused, and that's exploited in some cases, by the fact that being registered doesn't actually mean these entities are regulated.
"That's one of the issues before the court. They need to be able to interpret the legislation in a way that provides clarity on that issue. So what really is required in New Zealand for you to be on the register? and then how we (the FMA) exercise powers to take people off," Everett said.
"Fundamentally what we're after is clarity so that we can get on with our job without spending time in areas where there's disputes, which to us go to the very heart of why the rule's there in the first place."
In terms of the six options suggested by MBIE, Everett said the FMA wants "a really very straight forward change" to the wording in the legislation to make clear "the degree of nexus to New Zealand" that's really required for someone to be on the register.
"Bearing in mind, as I say, the register is designed to benefit New Zealanders, not companies operating outside of New Zealand. So real clarity on the territorial aspect," said Everett.
In terms of the appeal against the High Court Vivier setback, this is important for the FMA, he acknowledged.
"And it's very well timed in the context of the MBIE review. So for the Court of Appeal to basically, hopefully, take the opportunity to look at both those cases, one which we lost in the lower court and one which we won in the lower court, and provide that clarity here and now so that everyone knows what they're dealing with," Everett said.
"Because to be fair to the entities in question, they need clarity as much as we do. And so the real benefit of it being in court now is that when that judgment comes out, if it contains some reasoned judgment on the fundamental purpose of the FSPR, that can be taken into account in the MBIE review and MBIE can decide whether changes on the basis of that interpretation are necessary or not."
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