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Enforcement by the Financial Regulators – October 2015

Home Insights Enforcement by the Financial Regulators – October 2015

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Contributed by: Polly Pope and Will Irving.

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Published on: October 27, 2015

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Looking backwards: FMA releases its 2015 Annual Report

The FMA has released its Annual Report for the year ended 30 June 2015. 

The report provides further details on FMA reviews of market participants for compliance with their regulatory requirements. It notes that in the 12 month period, the FMA conducted 165 reviews of market participants. Of those, 112 were desk-based and concerned compliance with AML/CFT obligations, while 53 were on-site and covered a broader range of regulatory requirements.

Points of interest include:

  • Matters relating to finance companies continue to drop away – this year, 28% of the FMA's litigation matters involved finance companies (48% last year) but just 2% of its inquiries and investigations (13% last year). 

  • The FMA emphasises the continued use of a wider range of regulatory responses than court proceedings, with 77% of completed investigations resulting in sanctions that did not involve going to court. The FMA considers that its overall enforcement workload reflects its transition to harms-based conduct regulation.

A copy of the report is available here.

Looking forwards: Tone-at-the-top

On 14 October 2015, Liam Mason, the FMA's Director of Regulation, spoke to the INFINZ Annual conference, emphasising the important of “tone-at-the-top” in conduct regulation:

“We expect boards and directors of financial service providers, both big and small, to set a strong tone-at-the-top. To ensure that customer outcomes are central to organisational strategy, culture, and conduct.”

Again this reflects the FMA’s focus on proactive harm prevention. It is clear that the FMA expects companies to proactively identify and manage risks, and that it will look to place the responsibility to do so squarely on directors and senior management. 

Slides are available here.

Enforcement action in New Zealand

First receivers’ report on PTT Group

In August 2015, the High Court, on the application of the FMA, appointed receivers over a group of companies referred to as the PTT Group, controlled by Steven Robertson. The application was made under ss 522 – 524 of the Financial Markets Conduct Act 2013, which give the FMA the power to seek, amongst other things, the appointment of receivers where an investigation, prosecution or civil proceeding has been commenced in relation to a potential breach of financial markets regulation. The FMA reported having concerns that client funds may be at risk.

The receivers have recently filed a report indicating that the core business of the group was selling trading signals for gold and commodity markets and currency exchange. However, it appears the group also accepted funds for investment or “trading on behalf” but never actually invested money for or on behalf of clients. 

A full copy of the receivers’ report is available here.

Vivier wins appeal from deregistration

Vivier and Company Limited has won an appeal in the High Court against the FMA over its deregistration from the Financial Services Providers Register.  

The FMA was given enhanced powers to direct deregistration in 2014 amendments to the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The amendments had their origin in a concern about the use of the registration provisions by some offshore entities. The Register enables the public to access information about financial service providers, and enables regulation of such providers. It does not, however, create a licensing regime. The concern was that by becoming registered as Financial Services Providers (“FSPs), but not carrying on business in New Zealand, offshore entities could give the impression to offshore customers that they were resident or regulated in New Zealand.

This case was the first appeal from a direction to deregister under the Act. Justice Brewer quashed the decision to deregister Vivier, finding:

  • The FMA failed to acquire a sufficient evidential basis to properly weigh the considerations required for deregistration before making its decision. Justice Brewer formed the view that the evidence that the FMA had in its possession primarily went to whether or not Vivier provided financial services in or from New Zealand, and whether those services were regulated by New Zealand law, but that that was not sufficient – Parliament decided that FSPs must register under the Act even if they do not provide financial services in New Zealand. In terms of whether Vivier’s registration misrepresented the extent to which it provides financial services in New Zealand, Justice Brewer found that indications, based on complaints (not related to Vivier itself) that clients of FSPs mistakenly believe that services are provided in New Zealand and the relevant services are regulated in New Zealand, are not sufficient evidence to justify a direction to deregister. 
  • The FMA breached Vivier’s rights to natural justice, including by failing to disclose a complaint made to it concerning Vivier, which was in turn based on a news article. The decision sets out basic requirements for a notice from the FMA that it is contemplating directing registration, in terms of the detail, evidence and reasons which should be provided. 

The Court’s decision in Vivier v FMA is available here.

The FMA noted in its Annual Report that it continues to have serious concerns about the high level of complaints about online foreign exchange trading platforms, and that its project to deregister companies from the Financial Service Providers Register is a crucial step in addressing this issue. Whether the Vivier appeal substantively slows this project remains to be seen. 

SPG directors plead guilty to FMA charges

The parallel investigations between the FMA and the SFO concerning Strategic Planning Group Limited (“SPG”) and SPG Investment Company No.1 Limited (“SPGI”) continue to yield results, with guilty pleas over the last month by two former directors to charges brought by the FMA. The investigation began in 2012, with a complaint to the FMA about management of client funds through SPG.

In summary, the FMA has said one of the former directors, Mr Andrew Robinson, stole investor funds of approximately $3 million to repay the investments of other investors and to pay for some business and personal expenses between 2010 and 2012. The FMA says Mr Robinson also made false statements in various investment reports to hide the true picture from investors. 

The outcome of this case shows the range of charges available to regulators to respond to Ponzi schemes. In this case alone:

  • the SFO secured criminal fraud convictions (theft by a person in a special relationship and dishonestly using a document) of Mr Robinson, and a sentence of 6 years' imprisonment; and
  • the FMA laid charges against Mr Robinson under:
    • the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (for providing a broking service without being registered);
    • the Financial Advisers Act 2008 (for knowingly making a false statement in an application to become an Authorised Financial Adviser); and
    • the Financial Reporting Act 1993 (for making false statements in the SPGI financial documents). This was the only charge Mr Turbock, a second director, also faced.

The range of charges also reflects the way in which the FMA and the SFO work together. The 2012 memorandum of understanding between the agencies provides for joint investigations and records the SFO’s primary responsibility for fraud and the FMA’s primary responsibility for financial markets regulation, as reflected in the division of charges discussed above.

Copies of the FMA’s media statements are available here and here.

Remaining OPI Pacific Finance directors plead guilty; sentenced

Finally, over the last month, all former directors of OPI Pacific Finance have pleaded guilty to charges of misleading investors and have been sentenced to pay reparation and community service, in addition to an automatic ban from company management.

A copy of the FMA’s media statement following the sentencing of the last director can be found here.

 


This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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