New Zealand's reputation as a responsible member of the world's financial community is undermined by holes in the financial services provider register, which is still open to abuse by foreign firms, say industry groups.
The Ministry of Business, Innovation and Employment is revisiting the register in a legislative review of the 2008 Financial Advisers and Financial Service Providers (Registration and Dispute Resolution) acts, which were intended to revive public confidence in financial advisers by imposing a licensing regime and introducing a new level of professionalism in the industry. It's preparing an options paper to be released late next month.
The register has come under scrutiny in recent months as overseas firms signed up without operating in New Zealand to bolster their credibility in the eyes of investors. That sparked a legislative response last year giving the Financial Markets Authority the power to de-register or block firms where it felt they misled consumers into believing the companies provided services in New Zealand or were regulated locally.
AdvertisementAdvertise with NZME.
Submissions generally saw the register's controls as being underdone and leaving New Zealand at risk of appearing to regulate overseas firms when it didn't.
The Institute of Finance Professionals New Zealand said in its submission the status of registered firms and the use of the term "Registered Financial Adviser" was a major issue, which allowed unscrupulous or careless international financial service providers to shelter under the term and the apparent supervision of the FMA to sell their services, generally to overseas customers.
"This is damaging for New Zealand's reputation as a responsible member of the world financial community and for the reputation of the regulator system at home," INFINZ said in its submission.
The group suggested subjecting companies to anti-money laundering regulation, or requiring them to pay a bond in favour of their dispute resolution scheme to "provide practical disincentives for such behaviour".
This is damaging for New Zealand's reputation as a responsible member of the world financial community and for the reputation of the regulator system at home.
Broking and research house Craigs Investment Partners said misuse of the register undermines the integrity of New Zealand's capital markets and should be addressed as a priority. Bank of New Zealand agreed. In a report to Commerce Minister Paul Goldsmith on the registration aspect of the review in August, MBIE officials said the register was a useful if limited monitoring tool for enforcement, but had let foreign-based firms register to cash in on New Zealand's reputation as a well-regulated jurisdiction. The report said the issue was a priority for submitters, though the number of fraudulent cases was small.
"Increased risk profiling and integrity checking by the FMA and Companies Office and new powers to prevent registration and to de-register has reduced the number of FSP applications from offshore entities in recent months," the report said. MBIE officials recommend changing the territorial scope and registration requirements of the law to exclude providers who don't offer services to or from New Zealand.