Name suppression stands in first case under FSP Act charges

A New Zealand-based director potentially facing stiff penalties for allegedly breaching the Financial Service Providers Act has had his interim name suppression continued by the North Shore District Court.

In a hearing before Judge Andrea Manuel, the decision for granting continued name suppression was reserved.

The hearing follows the Financial Markets Authority filing charges in February against an unnamed company and its New Zealand-based director, the first criminal charges laid under the act.

Since 2014, the FMA has had the power to direct the Registrar of Companies to deregister a company from the Financial Services Providers Register (FSPR) where the registration is likely to create a false or misleading impression that the company provides financial services in New Zealand, that it is regulated in New Zealand, or the company’s registration otherwise damages the integrity or reputation of New Zealand’s financial markets.

The register, which is a simple list of financial businesses, is frequently hijacked by online forex traders seeking to imply they are regulated in New Zealand. Although efforts had been made to stop overseas companies from using the register, many have used patsy New Zealand nominee directors and some are linked to a company service provider which has dozens of directorships.

The charges allege the company continued to maintain on two different websites that it was registered on the FPSR after having been deregistered and despite subsequent warnings from the Companies Office about misleading statements on its website about its registration. No date has been set yet for the substantive hearing of the case.

At the time the charges were laid, FMA head of enforcement Karen Chang said the regulator would hold company directors to account for FSP Act breaches as it was concerned the Financial Services Provider Register is being abused. Its September report on the FSPR sounded a clear warning of its intention to target directors who are encouraging or facilitating abuse of the register.

Under section 40 of the FSP Act, any director who knowingly authorises or fails to prevent an offence by the FSP also commits an offence under the act. Directors can be liable for a maximum fine of up to $100,000 on each charge or imprisonment of up to one year.

Charges in a second case are understood to be in the pipeline.

After several court cases to establish its powers of deregistration under the act, the FMA’s September report outlined the key characteristics that would probably trigger a FSP registration review: a passive New Zealand-based director; a token New Zealand-registered office that only provides back-office administration; primarily overseas business operations with no local customers; FSP registration that is likely to mislead consumers into thinking the company is regulated by New Zealand financial services law; attempts to obscure the beneficial owner; and outsourced registration to a company formation agent or service provider.

The report said the FMA had reviewed 208 FSPs in the past three years and, of those, 69 were deregistered and 21 voluntarily withdrew while 10 were referred to another agency.

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