New Zealand is a relative newcomer when it comes government financial regulation and is somewhat of a unique proposition. In the latter part of 2010, New Zealand established a Financial Services Providers Register’ offering a great chance for unregulated over-the-counter brokerages, as well as new start ups to gain customer confidence by becoming registered in a well respected jurisdiction without all of the hassle of going through the costly and drawn out process of becoming regulated in many of the most respected European jurisdictions.
Back in 1995, New Zealand repealed its entire Banking Act allowing totally free entry into the field of banking and financial services provision. However, there are still several laws regulating such business but New Zealand is unique in the sense that a international banking service or financial services provider can be set up without huge capital requirements or excessive supervisory regulations. There are also very limited qualification requirements allowing almost anyone to set up such an entity. As long as the financial services provider doesn’t offer services to citizens of New Zealand, the entity is also outside the scope of the 1989 Non-Bank Deposit Taker regulations. Until recently it was perfectly possible to be registered with the FSP and not actually have any physical base within New Zealand. It is important to note that the FSP is merely a register of organisations offering financial services and that financial regulation for the finance companies operating within New Zealand is undertaken by the FMA.
To be a properly regulated brokerage must register and be approved by the FMA, rather than just appear on the FSP list. The fact that New Zealand has a generally positive international reputation has led to a number of Far East brokerships to apply to the FSP register in order to give the company a greater air of legitimacy without having any physical link to New Zealand. However the FSP has set out a number of new provisions which prevent this and make being on the FSP register a more serious proposition.
An FSP must now:
- Have a physical office in the jurisdiction of New Zealand (virtual offices do not count).
- Have a compliance officer operating in that physical office.
- All client record keeping must be undertaken from the physical office in order for it possible to complete on-site inspections.
- Any one on the FSP must be registered as a corporation and comply with company law.
These requirements will be implemented over the course of 2013, and all institutions which do not comply will be informed that will either have to open a physical office in New Zealand or face having their registration revoked. At the moment being on the FSP register is pretty meaningless but after these provisions it will become a much serious thing to have. Though merely being on the FSP register will hardly be the equivalent of being a properly regulated entity even after the implementation of these provisions. So it will be interesting to see what the many FSP registered entities decide to do, I imagine a number will abandon the FSP label completely.