Most Read Contributor in New Zealand, September 2016
Court of Appeal's confirmation Court of Appeal's
confirmation that the Financial Markets Authority (FMA)
was justified in deregistering Vivier and Company Ltd
(Vivier) will strengthen the integrity of New
Zealand's Financial Service Provider (FSP)
registration system to the benefit of the New Zealand financial
It will make it easier for the FMA to strike off FSPs who do not
provide services in or from New Zealand.
In response to concerns about "flag of convenience"
companies registering here to claim New Zealand registration, and
implied regulatory oversight, the FMA was given new powers in 2014
to deregister a foreign FSP where registration was likely to create
a misleading impression of the extent to which the FSP was subject
to New Zealand financial regulation.
FMA direction and High Court decision
The FMA directed last year that Vivier be de-registered because
it became concerned that Vivier was not providing any financial
services in or from New Zealand, and that its FSP registration
might therefore mislead consumers, or damage the reputation of New
Zealand's financial markets.
It was an initial exercise of the FMA's new power but was
subsequently struck down by the High Court on the basis that the
FMA did not have the evidence to justify the decision and had not
observed the principles of natural justice.
The FMA appealed that judgment successfully.
The Court of Appeal decision
The question before the Court of Appeal was what evidential
threshold must be applied before an FSP may be struck off, and
whether it is sufficient that the FSP provides no services in or
from New Zealand.
The Court of Appeal found that the FMA:
could de-register a firm if all or most of its services were
provided overseas if the FMA concludes rationally and in context,
that there is a risk of reputational damage to New Zealand or that
consumers might be misled
did not need evidence specific to Vivier to establish that its
registration would mislead consumers or damage the reputation of
New Zealand's financial markets, and
was entitled to rely on its expert knowledge of financial
markets here and overseas when assessing whether a registration is
misleading or damaging.
The Court of Appeal drew the threads together by stating that
what is far more material than incorporation or possession of a
place of business in New Zealand, is whether the FSP is
providing financial services in or from New Zealand, and
whether it is generating any associated financial activity in New
Zealand. If the FSP is not doing so, or cannot demonstrate
any intention of doing so, then it will be difficult for it to
maintain its registration as an FSP.
Chapman Tripp comment
The dichotomy the FSP legislation creates is that it requires
companies to be registered here if they are resident or have a
place of business in New Zealand, regardless of where they
provide their financial services, but allows them to be
deregistered if they provide their services overseas and promote
their New Zealand registration to create a false appearance that
they provide financial services in or from New Zealand.
The Court of Appeal's decision addresses the dilemma created
by this contradictory approach, by suggesting that foreign FSPs
with a place of business here, but no relevant financial service
activity in New Zealand, should:
not promote their New Zealand registration or promote
themselves on the basis that, while they are registered here, they
are not providing their financial services in or from New
Zealand and are not regulated here, and
provide evidence of compliance with the requirements of a
relevant offshore regulator, and any other information showing that
they are substantial and reliable.
To us, it would be better if registration was required only if
the FSP is providing financial services in or from New Zealand, and
not on the basis of whether the FSP has a place of business
Chapman Tripp's earlier commentaries on this case are
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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