Bona Fide or Bogus? New Zealand FX Broker Registration Minefield Explained

New Zealand has become a very popular destination for FX brokers to establish operations with close proximity to important markets.

New Zealand has become a jurisdiction which is attractive for establishing a retail FX company, due to its relative ease of access, low start-up costs and close proximity to financial markets within the Asia-Pacific region.

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Historically, companies and individuals wishing to offer FX services within New Zealand were faced with minimal bureaucracy and did not even need to have an office in the region.

A change came in January this year, when New Zealand’s government took the steps to ensure that all firms operating in the antipodean nation meet more rigid qualifications. Some of these new demands include that the company should have not only physical office premises there, but also senior staff based onsite, with specific roles that support the operating model of the company, such as compliance director, operations director and a fully operational back office team entrusted with keeping customer records according to regulatory stipulations.

Checking The Correct Boxes

One year on, companies with an interest in establishing in New Zealand are able to do so with the assistance of a growing number of professional services consultancy firms which can assist brokers with meeting the correct criteria and ultimately gaining the license to operate in the region.

It has come to the attention of Forex Magnates over recent months that there are caveats which ought to be borne in mind when selecting a consultancy firm with whom to entrust the establishment of a registered New Zealand entity. One of which is that there have been reports among brokers and consultancies alike that the region is home to not only legitimate businesses, but also to a number of less than scrupulous individuals who purport to be able to gain a New Zealand FX license for overseas companies in exchange for a fee, but often fail to deliver the service according to the correct procedure.

The line which these practices take is that a broker pays a single fee to the individual offering the service. The individual then promises to provide the broker with full New Zealand licensing, but instead the broker is placed on the New Zealand Financial Services Provider register which does not constitute regulation. Therefore, without physical offices and the correct key personnel in place, the broker would be subject to striking off by the New Zealand Companies Register after an audit at the end of the financial year.

No Recourse

Indeed, there is little, if any, recourse against such practice, because there is no regulatory body or ombudsman which covers such consultancy services. On this basis, the responsibility to conduct due diligence when selecting a consultancy firm, lies firmly with the broker itself. With this potential pitfall in mind, it is important to ascertain how to select a firm which will carry the task out correctly.

Forex Magnates spoke to industry sources in New Zealand, one of whom is the CEO of a professional services consultancy offering such services to FX firms, who explained that “Brokers should be aware that consultancies which aim to gain licenses for FX firms to operate in New Zealand, but do not ensure that the broker has any services at that address, will cause the broker to get into legal trouble”.

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The source continued that, “If a consultancy charges a firm a fee in order to complete the Financial Services Provider registration on behalf of an FX broker, while that broker does not have a real operation in New Zealand, then the broker runs the risk of losing the registration when the Companies Office conducts its first inspection.”

Indeed, a further matter worthy of consideration is that a straightforward registration on the list of financial services providers does not constitute regulatory adherence, as in New Zealand, market participants are required to be regulated by the official national regulatory authority which is New Zealand Financial Markets Authority. Therefore, rendering the payment of a consultancy to simply conduct FSP registration, without satisfying the criteria laid out by the Financial Markets Authority regarding foreign exchange dealers is a white elephant.

“Although New Zealand is an excellent jurisdiction in which to register, as it is cheaper and easier to access than Australia, it is, in my opinion, not worth being regulated by the Financial Markets Authority. It is better to remain in New Zealand under registered status on the FSP, but if full regulatory oversight is required, it is better to go to Australia and obtain an ASIC license,” is the opinion of our source.

The risk of being charged for a service which cannot be carried out can be reduced by a broker ensuring that the consultancy firm is either a legal practitioner, or chartered accountancy practice which has successfully established firms in the region. Once provided with a list of firms, a prudent measure would be to check with the New Zealand Financial Markets Authority the date of issue of license, and if the licenses of the listed firms are still effective, with the company in operation.

No Longer Viable

Advocate Tal Ron, of Tal Ron Drihem and Co. Law Firm expressed his view to Forex Magnates on this matter that New Zealand has been a popular jurisdiction for online brokers until very recently, but now it’s simply not an option, except where a broker is happy to pay $25,000 to $30,000 yearly for maintaining an operation and office, whose license is virtually not accepted by anyone (except maybe specific PSPs and banks).

“Until July 2013,” explained Mr. Ron, “many online operators formed a New Zealand company, registered themselves as an FSP, formed some “Virtual” presence in New Zealand and registered themselves with a dispute resolution scheme. We offered this solution as well, for $8,250 yearly all-inclusive.”

“However,” continued Mr. Ron, “since July tens of online brokers were deregistered by the regulator, and many banks do not accept New Zealand companies anymore.”

Mr. Ron explained to Forex Magnates that his law firm recommends to its client to pursue either classical EU regulation (CySec or FCA, or CySec that is passported to FCA registration number); or “Exotic” regulation eg Belize/Seychelles, all of which in his opinion are more valuable these days than New Zealand regulation. He concluded by confirming that, “CySec regulation is currently the most popular in our law firm.”

Caveat Emptor, as they say.

 

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