NZ Firm, Direct FX Contemplating Derivatives Cessation After Regulatory Lapse

The potential decision stems from a March 31, 2015 filing statement, in which Direct FX did not meet a regulatory

Direct FX, a New Zealand foreign exchange (FX) service provider is contemplating a cessation of its Derivatives Issuer License after a temporary breach of compliance rules across a constituency of its forward contracts, according to a recent report from BusinessDesk.

New Zealand’s Direct FX maintains no connection with Direct FX Trading PTY LTD of Australia. Conversely, Direct FX Trading Pty Ltd is an Australian company headquartered in Sydney (ACN 120 189 424) and possesses Australian Financial Services License number 305539.

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The potential decision stems from a March 31, 2015 filing statement, in which NZ’s Direct FX revealed that it did not meet a regulatory condition of its license with New Zealand’s Financial Markets Authority (FMA). Direct FX is presently amongst twelve non-bank financial intermediaries that hold a derivatives issuer license in New Zealand.

More specifically the condition stipulated that Direct FX maintain net tangible assets in excess of $1.0 million at all times during the fiscal year. Despite the group’s NTA maintaining a $1.4 million sum, its actual figures were calculated below the $1.0 million threshold once ineligible assets were controlled for and excluded.

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Since then, Direct FX’s temporary breach has been reconciled, namely as it covered less than 1.0% of the provider’s nearly $2.68 million of restricted deposits in the financial year, per its latest regulatory filings. Despite notifying the FMA of this activity, the regulatory laws are quite clear and this lapse could ultimately trigger an inability for Direct FX to complete its financial obligations to clients.

According to Managing Director Andrew Isbister, in a recent statement on the regulatory breach: “The breach was immaterial when considered in the context of our overall business. Most of the firm’s assets are in cash or cash equivalents and some was deposited in a manner that mean they had to be excluded from the ‘adjusted’ assets calculation for NTA purposes.”

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

Correction: An earlier version of this article did not disaggregate the two firms known as Direct FX. Direct FX Trading PTY LTD of Australia and Direct FX out of New Zealand are two different companies with no association or affiliation.

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