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FMA files first charges over misleading statements made about registration on NZ's problematic Financial Service Providers Register

FMA files first charges over misleading statements made about registration on NZ's problematic Financial Service Providers Register

The Financial Markets Authority (FMA) has filed criminal charges against a company and its New Zealand-based director for allegedly breaching the Financial Service Providers (Registration and Dispute Resolution) Act (FSP Act).

The charges have been filed in the North Shore District Court. However, neither the company nor the local director has been named because the issue of name suppression has yet to be heard by the Court, the FMA says.

The charges are the first of their kind under Section 12 of the FSP Act.

The company is charged with two counts of breaching section 12 of the FSP Act. The NZ-based director is charged with two counts of breaching sections 12 and 40 of the FSP Act.

"Section 12 of the FSP Act provides that no person, including a corporation, can hold out that it is in the business of providing a financial service unless it is registered on the FSPR and a member of an approved dispute resolution scheme. Section 40 of the FSP Act covers a director’s liability if he knowingly authorises or knowingly fails to prevent a corporation committing an offence under the Act," the FMA says.

According to the FMA, each charge for breaching section 12 of the FSP Act carries a maximum fine of $300,000 for a company and a maximum penalty of either $100,000 fine and/or one year imprisonment for an individual. 

The FMA alleges the company continued to hold out on two different websites that it was registered on the Financial Service Providers Register (FSPR) after it had been deregistered and despite subsequent warnings from Companies Office regarding misleading statements on its website as to FSPR registration.

“The FMA will hold directors of companies to account where the company is in breach of the FSP Act and we’re concerned the FSPR is being abused. Our intention to target directors who encourage or facilitate abuse of the FSPR was set out in our report in September 2017, so a clear warning has been given," said Karen Chang, the FMA's head of enforcement.

"The FSPR has been abused by businesses and individuals who use New Zealand’s reputation as a well-regulated country to target overseas investors.  The FMA invests significant time and resources in tackling this problem to protect the legitimacy of New Zealand’s financial services firms.”

The FSPR is managed by the Registrar of the FSPR, within the Ministry of Business, Innovation & Employment's Companies Office. It's a compulsory public register of financial services providers. All businesses on the FSPR must have a NZ or Australia-based director. Being registered on the FSPR shows a business or individual has met basic requirements including passing criminal history checks on its director(s) and that the nature of the financial services they provide is publicly available on the FSPR.

However, being registered on the FSPR doesn't mean a business or individual is licensed, monitored or supervised by NZ regulators or those in another jurisdiction. The FMA was granted powers by the Government to direct the Registrar to deregister companies or prevent companies from registering on the FSPR in 2014. has written ad nauseam about problems with, and misuse of, NZ's FSPR. This includes a story from last March pointing out the FMA had received enquiries about companies registered on the FSPR from 83 countries, and 340 misconduct reports from overseas about companies registered on the FSPR. Our FSPR stories can be found here.

Tuesday's statement from the FMA on the criminal charges comes after the regulator, in its Conduct Outcomes Report last week, said it had two cases where proceedings were likely to be brought against NZ-based company directors for inappropriate use of the FSPR.

"We have the sector under scrutiny, and have several active investigations in progress concerning misuse of the FSPR," the FMA said.

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