FMA expects flood of appeals of FSP deregistration, as Wewege's firm becomes test case

The government and regulator were concerned shell companies were registering as financial service providers in NZ to trade on the country's reputation for not being corrupt.

The Financial Markets Authority is expecting a wave of appeals after deregistering 100 companies from the Financial Service Providers register, as the regulator awaits a High Court ruling on Vivier & Co's appeal, the first one to go through the courts.

Appearing in the Wellington High Court before Justice Timothy Brewer, the financial market watchdog's counsel Mary Scholtens QC said the hearing was the first appeal of a deregistration since FMA was granted the powers under the Financial Service Providers (Registration and Dispute Resolution) Amendment Act 2014.

The government and regulator were concerned shell companies were registering as financial service providers in New Zealand to trade on the country's reputation for not being corrupt. Registration requires companies offering financial services in New Zealand or to offshore clients from the country to join an approved disputes resolution scheme.

"Parliament has recognised if registration creates misleading appearance of regulation in New Zealand then that may damage New Zealand's reputation overseas," Scholtens said. Since the legislation to empower FMA, 100 companies had been dereigstered, with four appeals filed to court, including two that were waiting on the outcome of today's hearing before proceeding, Scholtens said.

Last year, FMA asked Vivier to remove references to FMA regulation and the regulator's logo from the website because it might be misleading to international clients.

​According to Vivier's website it offers "savings accounts featuring above average returns, without market risk volatility" and says it achieves this "by making highly selective loans, secured against real estate".

The Auckland-based company counts Luigi Wewege, who shot to prominence in New Zealand after being involved in revealling Auckland mayor Len Brown's affair while working for mayoral contender John Palino, as a director and chief executive. On his personal website, Wewege says he founded the parent company, Vivier Group and is managing director of its sister companies Vivier Investments, Vivier Developments, Vivier Home Loans and Vivier Mortgages.

In April, the regulator notified Vivier it would be removed from the Financial Services Providers Register because it didn't believe the company was providing financial services in New Zealand and therefore didn't require registration.

Vivier counsel Andrew Riches said the FMA only began to investigate the firm after a member of the public passed on an online news article, which linked the company to sub-prime mortgages in Ireland, and questioned whether that reflected badly on the reputation of New Zealand's financial regulation. The article, by Gareth Vaughan and published on Feb. 26, 2015, detailed Vivier's dispute with an Irish television channel over claims sub-prime mortgages were funded by the proceeds of British fraud.

Riches told the court that in the notice of deregistration, the FMA didn't mention the article, which he claims is a breach of natural justice, as it didn't give the company an opportunity to dispute the news article.

"Bodies shouldn't make decisions based on newspaper articles," Riches said. The email pointing out the article should have been included in the notification to give Vivier the opportunity to "rubbish" the claims, "because the article contains extremely derogatory statements ... and was clearly in the mind of decision makers".

The "inflammatory article led to the decision" which was made by FMA with "a degree of bias and not as a fair-minded lay person would expect," Riches said.

The FMA denies it deregistered Vivier as a result of the article although the regulator did say it started investigating Vivier after the article noted that the Department of Internal Affairs was no longer overseeing Vivier under anti-money laundering and countering financing of terrorism legislation. Further investigation, including a site inspection of the Auckland offices by the Ministry of Business, Innovation and Employment, showed little evidence of activity in the office other than some administrative work.

Scholtens said the company was given the opportunity to persuade the regulator it had operations in New Zealand and was unable to provide any evidence that it did.

The "FMA doesn't accept that (Vivier) is providing any financial services listed in New Zealand - there is no evidence of that, apart from an assertion," Scholtens said.

Justice Brewer has imposed an interim order suppressing publication of naming the person who forwarded the article to the FMA. Riches first argued that the court should name the person as there was suspicion from his clients the journalist himself emailed the regulator, which Scholtens said it was not the case.

Justice Brewer reserved his decision.