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Foreign financial services providers spurred Foss to tighten registration rules

Monday 6th May 2013

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Foreign companies looking to boost their international credibility with a New Zealand registration were behind Commerce Minister Craig Foss' plans to tighten up the database.

In March, Foss announced plans for stricter monitoring rules and beefed up investigative powers for regulators of the Financial Service Providers Register, three years after its launch as part of government efforts to restore investors' faith in financial advisers and the wider sector. The legislation was introduced to Parliament on April 18 as part of the Credit Contracts and Financial Services Law Reform Bill.

The minister was briefed last year about "ongoing attempts by offshore based financial service providers (FSPs) to register in New Zealand solely for reputational reasons," by the Ministry of Business, Innovation and Employment, according to documents released under the Official Information Act.

That posed a threat to New Zealand's reputation as customers "may incorrectly assume that they are New Zealand-based or licensed in New Zealand, or both," Foss said in a Cabinet paper.

"A number of offshore FSPs are superficially adjusting their operations in an attempt to fall within the FSPA's (Financial Service Providers (Registration and Dispute Resolution) Act 2008) scope, without actually establishing a substantive financial services business in New Zealand," he said.

He cited UK-based limited partnership IB Capital FX (NZ) LLP as an example of a foreign firm registered from December 2011 and July 2012 that was struck off, and later alleged to have been involved in fraud of about US$53 million. IB Capital was added as a firm to be wary of by the Financial Markets Authority in November last year.

In a December briefing, MoBIE told Foss the registrar had already struck off 150 foreign financial service providers, and was turning down five new applications every week "on the basis that he registrar is not satisfied that the financial service is being provided from a New Zealand place of business."

The changes were similar to the government's crackdown on shell companies, that's been working its way through Parliament via the Companies and Limited Partnerships Amendment Bill. That legislation has passed had its select committee report, which recommended granting the Companies Registrar greater powers to require information from companies and limited partnerships.

Companies offering financial services, such as banks, insurers and brokers, and authorised financial advisers have to register with the regime. The register providers a company's address and the services it is registered to provide, meaning they aren't allowed to offer anything not listed.

Foss said he was reluctant to make substantive changes to the scope provisions for the FSPR, saying they "might inadvertently either impose costs on all legitimate New Zealand FSPs seeking to register or create a loophole by which actual New Zealand based FSPs could avoid registration."

By giving the registrar and FMA greater powers to look at FSPs, Foss said he anticipated a reduction in the volume of suspect applications.

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