Errant directors putting themselves at risk, warns FMA

Fianncial Markets Authority CEO Rob Everett. Photo / Supplied

The Financial Markets Authority says it saw positive change in market participant conduct last year - though it's likely to bring proceedings against at least two company directors for misusing the Financial Service Providers Register and has a number of ongoing insider trading inquiries.

The regulator's conduct-outcome report for 2017 said it had positive engagement with those in the financial services sector, but continued to see potential harm from participants who were not adhering to financial reporting or disclosure obligations. It saw a range of misconduct in the year - some familiar, such as insider trading and market manipulation, and a high number of investment scams, which it said was worrying.

The FMA said it had two cases in which proceedings were likely to be brought against New Zealand-based company directors for inappropriate use of the Financial Service Providers Register (FSPR), and the sector was under scrutiny. The register, overseen by the Companies Office, became a legal requirement in 2010. Since 2014, the FMA has been able to order the deregistration of businesses and individuals and prevent registration.

"It's a bit of a watch this space - when we're able to give details, we will," said Nick Kynoch, FMA general counsel. "The broader point is we've seen inappropriate registration, companies coming back and re-emerging with different names, but often a common feature is the New Zealand-based directors.

"In the past we've taken action against the entity itself, but now we're looking at the provision of services by New Zealand-based directors and the responsibilities those directors have," Kynoch said. "We want to see significant change in that area, we've been quite clear we think the FSPR is being inappropriately utilised and we think that it represents a real risk to New Zealand.

"The NZ-based directors are exposing themselves to risk in taking those appointments, and we don't think in all instances those responsibilities have been discharged."

In September last year, the FMA said it would target New Zealand directors of FSPR businesses who encouraged or facilitated abuse of the FSPR, using its full range of enforcement tools against directors of firms who registered under false pretences or in breach of the regulations.

The FMA also started two insider trading cases in the year - the first in relation to ERoad, culminating in a guilty plea from former employee Jeffrey Honey. The trial of a second person, who has applied for permanent name suppression, has yet to begin.

The second case relates to a former employee of VMob Group, now called Plexure Group, with that case yet to reach court.

The report said the watchdog currently had "a number of other matters in progress" in respect to insider trading.

The regulator summarised other notable cases it handled in 2017, including the civil judgment against Milford Asset Management portfolio manager Mark Warminger and investigation into Goldman Sachs' trading activity; the first use of section 34 powers (exercising the rights of investors) through a settlement with Prince and Partners; 47 charges filed against Steven Robertson/PTT Ltd; and the Sell My Good Initial Coin Offering prevented after engagement with directors.