Gareth Vaughan argues the Companies Office needs to pull finger and help the FMA out if NZ's reputation is to be protected from association with unsavoury financial service providers

By Gareth Vaughan

As the Government tries to extract itself from the self inflicted wound known as the Financial Service Providers Register (FSPR), there's a wider problem that should also be on the table.

Companies can be removed from the FSPR at the Financial Markets Authority's behest when the regulator believes the company, likely to be operating via the internet somewhere overseas, is giving a false or misleading impression about the extent to which it is regulated in New Zealand. Such companies are deemed to be damaging the integrity or reputation of NZ’s financial markets, and/or NZ’s law or regulatory arrangements for regulating those markets.

Since 2014 the Financial Markets Authority (FMA) has had these powers to direct Companies Registrar Mandy McDonald (recently succeeded by Ross van der Schyff) to deregister companies from the FSPR. 

To date 68 companies have been deregistered from the FSPR at the FMA's behest, with the full list of them at the foot of this article. Although these 68 can no longer describe themselves as NZ registered financial service providers, many of them, 23 in fact, remain registered NZ companies under the Companies Office regime overseen by the Ministry of Business, Innovation & Employment (MBIE). Thus one-third of the companies removed from our FSPR by our financial services sector regulator are still able to tout themselves to the world as NZ companies.

Just to clarify. An NZ registered financial service provider can be booted off the FSPR because it is deemed to be bringing this country's reputation into disrepute overseas. However, such a company may be free to remain a NZ registered company. 

A case in point is Vivier & Company. As reported earlier this week, Vivier offers "a complete banking package" across five continents, is a NZ company and a former registered NZ financial service provider. The FMA and the Court of Appeal deemed Vivier unfit to be a registered NZ financial service provider. But Vivier is still an NZ registered company, along with another 22 companies on the list below.

Que?

How and why does this make sense?

I sought some clarification from MBIE. I asked:

If a company is deemed not fit to be a registered NZ financial service provider, how can it be fit to remain an NZ registered company?

And here's the response, attributed to a Companies Office spokesperson:

The purposes of registration under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (“the FSP Act”) and the Companies Act 1993 are quite different. 

There is a prohibition on any person (including a company) being in the business of providing financial services unless the person is registered as an FSP. The FSP Act sets out who is required to be registered as a financial service provider (FSP) and contains grounds under which a FSP may be deregistered (sections 18 – 18C). 

The registration of a company under the Companies Act does not entitle the company to provide financial services, or to carry out any other business that would otherwise be prohibited under another enactment. Accordingly, the deregistration of a FSP that is a company does not affect its registration as a company under the Companies Act 1993. The grounds for removing a company from the Companies Register are set out in the Companies Act (section 318).  

So does MBIE/the Companies Office believe that if a registered NZ company and financial service provider, operating somewhere overseas potentially in languages other than English, is removed from the FSPR, it simply stops offering financial services overnight? That sounds like the sort of conclusion someone who believes in the Tooth Fairy would draw.

Or alternatively, is it a case of what an NZ registered company might be doing overseas isn't in my jurisdiction so it's not my problem? That's even though said company is registered in NZ and telling the world so.

A Starfish

Here's one former registered NZ financial service provider that remains a registered NZ company for the good folk at the Companies Office to consider, Starfish Markets Ltd. It had two stints on the FSPR. Firstly, under FSP number 210605 from August 8, 2012 until December 20, 2012, and secondly under FSP number 272925 from February 21, 2013 to August 14, 2015. And as noted Starfish Markets Ltd is still a NZ registered company.

Starfish, which claims daily trading volume of $30 billion, says all services provided via its website, where it promotes contracts for difference (CFDs), forex and binary options, are managed from its office in England. It then refers to a Vanuatu licence authorising it to deal in securities including foreign exchange and forex trading. Starfish also lost a Cyprus Securities and Exchange Commission licence last year.

Starfish also points out it is "incorporated in New Zealand under the Companies Act 1993." And there's this information below talking up NZ's reputable business environment and strategic position as to why this country was chosen as Starfish's "branch office." 

 

Companies Office records list Starfish's shareholder as Wong Choon Keit who provides a Hong Kong address, who is also a director alongside Michael Reps of Warkworth.

Among the other former financial service providers that remain NZ companies detailed below, shareholders are located in the likes of the Cayman Islands, Cyprus, Turkey, Kuwait, the United Arab Emirates, the Seychelles, the British Virgin Islands, Spain, NZ, Britain and Australia.

Simply kicking a company off the FSPR doesn't mean the problem's over

I have previously argued that instead of committing time and resource to reforming the troublesome FSPR, the Government should simply abolish it because NZ does not even need it. This recent article provides context as to the scale of the problem the FSPR is, given the FMA has received enquiries from 83 countries about companies registered on NZ's FSPR, and 340 misconduct reports about NZ registered financial service providers from overseas.

And this latest article, I hope, sets out that simply kicking a company off the FSPR doesn't mean the problem's over. Instead the Companies Office needs to find a way to expunge these entities from NZ's Companies Register and tell the world it is doing so.

Companies removed from the FSPR at the FMA's behest  Are they still a registered NZ company?
Innovative Securities Ltd* Yes
3TG FX Financial Services Limited Partnership  No
Ace Capital Markets Limited No
Allied Victory International Limited Yes
Allozy Financial Group Limited No
Apex Financial Services Limited No
Ares FCL Services Limited Yes, Business Travel Ltd
Belfor Capital Limited No
Bewin Global Ltd Yes
BFS Group Limited No
Big Boss Financial Limited No
Choice Trade (International) Limited Yes
CTFC Limited No
Deal Matrix Limited No
Derbivi Limited Yes
DFX Group Trade Limited - (previously Prosperity Capital Limited) No
Diamond Group Trade Limited No
DVMAX International Group Ltd No
Dynamic Capital Advisors Limited Yes
Eagle Way Capital Limited No
Eastern Union Corporation Limited No
Excelsior Markets Ltd Yes
Exo Group Limited No
FGX Limited No
FirstFX (NZ) Limited No
Forex Trend Ltd No
Gage Capital Limited Yes
Galaxy Forex Limited (previously Morton Matthews Associates Pty Ltd) No
Global Prime Partners Ltd No
Hangsiu Group Limited Yes
House of Borse Limited No
IG Kiwi Ltd No
IKO Limited No
IMS FX Group Ltd No
Invest Foreign Exchange Limited No
IronFX Global NZ Limited No
Leoset Global Investments Limited (formerly Apex Capital Investments Limited) Yes
Miso Market Ltd No
MyFX Markets Pty Limited Yes
NBF International Limited No
New Zealand Credit Capital Management Limited Yes
NZ Brokersclub Ltd No
Oasis Global FX Ltd No
Pegasus Markets Ltd Yes
Rexor Investments Limited No
Safe and Sound Building Society Yes, a building society
Saudiquote Limited No
Scent Investments Limited No
Simple Trading Corporation Limited No
Sino Faith Fortune Limited Yes
Solidary Markets Limited Yes
Starfish Markets Limited Yes
Sumo Forex Limited No
Tigerwit Prime Limited Yes
Trade24 Investments Limited No
Tradesto Limited No
Transact Now Limited Yes, Brokerforge Ltd
Triumph Int Limited No
Turbo Trading Limited No
Union Markets Ltd Yes
United Global Holdings Ltd No
United Market Oracle Limited No
UWNZ Holding Ltd (now HLL NZ Limited) No
Vitalmarkets Solutions Limited No
Vivier and Company Limited Yes
With You Limited No
Worldnet Financial Services No
xCFD Limited Yes

*Innovative Securities has appealed its deregistration to the High Court. Thus pending the appeal's outcome, the deregistration is stayed.

Additionally, the FMA has directed McDonald to prevent the registration on the FSPR of 30 companies. Another 20 entities voluntarily deregistered after the FMA contacted them, and 34 applications were withdrawn or expired.

*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.

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4 Comments

Great work Gareth Vaughan. Thumbs up. In depth, investigative journalism exactly like this is what personally draws me to interest.co.nz. I trust someone who is accountable for oversight and governance of this acts on the gravity of this article.

Thanks r-mc, I appreciate that. To attract more comments I probably should have worked 'Auckland house prices' into the headline somehow...

Great work Gareth and appreciated. Our civil servants need to wake up. Administration, declarations and registers don't do the job. Yes. Delete the FSPR. We don't need it.

I know said it before - but, I guess that's a fail then?

The new Registrar of Companies has signalled a crackdown on dodgy shell companies that take advantage of New Zealand's reputation for clean business." Low-profile public servant Mandy McDonald took over from the long-serving Neville Harris earlier this month and in one of her first speaking engagements, at the Corporate Registries Forum in Auckland, said New Zealand had to be vigilant in protecting its reputation.

http://www.stuff.co.nz/business/industries/8415283/New-defender-of-NZ-business-reputation