The Financial Markets Authority (FMA) of New Zealand announced this Wednesday that it has suspended the derivatives issuer licence of EncoreFX (NZ) Limited after its parent company placed it into voluntary administration.
Although the FMA has suspended the licence of EncoreFX, the company is still allowed to close out any positions it has with existing retail clients, the regulator said in a statement today.
On the 30th of March 2020, Rees Logan, Adam Nikitins and Stewart McCallum of EY were appointed as administrators, who have been providing regular updates to the New Zealand authority regarding the administration.
EncoreFX provided foreign exchange (forex), international payments and risk management services. The company was issued its derivative issuer licence in August 2016, and the suspension took effect at 5 pm on Friday the 24th of April 2020.
7 Pharma Stocks You Need to Know in the Race for a Covid-19 VaccineGo to article >>
“To provide derivatives products to retail investors, a business must have a derivatives issuer licence from the FMA. The licence suspension can be lifted if the administrators find a new owner for EncoreFX that is able to satisfy the FMA that EncoreFX can meet the requirements for licenced derivative issuers,” the FMA said in its statement today.
According to the watchdog, it understands that the customer base of EncoreFX is largely wholesale.
EncoreFX reportedly defaulted because of COVID-19
On the 30th of March 2020 the company filed an assignment in bankruptcy pursuant to Section 49(1) of the Bankruptcy and Insolvency Act of Canada (the “BIA”). As part of this, EY was appointed as the Licensed Insolvency Trustee.
The company, founded by Peter Gustavson and Paul Lennox, said in a letter to clients, according to the Canadian newspaper the Times Colonist, that it had no choice but to go into administration as customers defaulted on their obligations largely due to the changes in the FX market caused by the pandemic.
“Further, certain of our customers, including those that owe substantial amounts to EncoreFX, have notified us that they themselves are entering foreign administration proceedings that will prevent the timely payment of amounts due to EncoreFX,” the letter said according to the newspaper.