FMA says Direct FX did the right thing

The Financial Markets Authority says foreign exchange services company Direct FX took the right approach in declaring compliance issues and disclosing it in financial statements.

"Since then it has satisfied us the company is now in compliance with the conditions of its derivatives issuer license.

Although Direct FX is now complying with FMA rules, managing director Andrew Isbister, is considering cancelling its licence after didn't maintain net tangible assets over $1 million at all times. While actual NTA was about $1.4 million, the figure was below $1 million once ineligible assets were excluded.

Direct FX is among 12 non-bank financial intermediaries that hold a derivatives issuer licence and are surviving in a market dominated by larger firms and banks. Three more hold transitional licences, according to the FMA's website, while seven registered banks are treated as if they sold a licence.

"There is a far better story to tell about how companies like us have survived this far, but how many of us are now questioning the ongoing viability of providing services," Mr Isbister says.

"For us, the issues caused with our non-compliance will most likely see us cancel our derivatives issuer licence shortly. We simply don't need the added weight. We only sought the licence to help a tiny number of clients hedge their physical FX needs."

Mr Isbister says small providers "are ultimately going to be squeezed out of the market, which is ultimately not good for the consumer, especially on forward FX, where rates are not at all transparent."

The company has two business lines – an interbank brokerage service and a deliverable remittance service. It had survived a cull that had put most remittance providers in New Zealand out of business in an environment "that continues to stack the deck against remitters," says Mr Ibister.

(BusinessDesk)

Jonathan Underhill
Fri, 15 Jan 2016

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FMA says Direct FX did the right thing