Enforcement by the Financial Regulators – September 2015

Home Insights Enforcement by the Financial Regulators – September 2015

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Contributed by: Polly Pope and Spencer Vickers.

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Published on: September 16, 2015


Enforcement action in New Zealand

FMA to take integrative approach to supervision and enforcement under new regulation

Speaking at the Banking and Financial Services Law Association conference in Brisbane this month, the FMA's chief executive indicated that the FMA is looking to further integrate supervision with enforcement. This would enable the FMA to use all of the new regulatory tools it has – such as stop orders, warning notices, and infringement notices – more easily as a part of its day-to-day business.

Up until now, the FMA has treated enforcement as a separate function, characterised by large-scale litigation. That approach reflects the former regime in New Zealand, which was geared towards litigation as its sole means of enforcement. By contrast, conduct regulation requires the FMA to do two things: apply other remedies, including preventative ones, without going to court and to maintain the ability to bring substantial cases to court when it needs to.

A link to the speech notes can be found here.

FMA releases Enforcement and Investigations Report 2015

The FMA’s annual Enforcement and Investigations Report for the year ending 30 June 2015 highlights a range of regulatory responses to poor compliance and misconduct, with 23% of completed investigations resulting in court proceedings. This approach shows that the FMA is using the wider range of regulatory tools available to it under the FMCA.

Key outcomes during the year include:

  • $51.14 million secured to compensate investors;

  • $1.71 million awarded in penalties and fines;

  • enforceable undertaking or representations received from 8 directors not to participate in aspects of financial markets for specified time frames;

  • seven directors prosecuted for failing to file their financial statements;

  • public warnings issued for specific companies; and

  • 28 companies removed from the Financial Service Providers Register.

In total, the FMA was involved in 51 investigations and 28 litigation matters during the year.

The report notes that the FMA’s future focus will be on using an increasing range of regulatory responses to work with those within the industry to address issues and harms as they arise. However, stronger intervention powers will still be employed where necessary.

A copy of the FMA’s media release can be found here.

A copy of the Report can be found here.

FMA files civil proceedings for alleged market manipulation

The FMA filed civil proceedings in the High Court against Mark Warminger for trading that the FMA alleges amounted to market manipulation. Press reports indicate Mr Warminger is actively defending the claim, which may mean we see substantive evaluation by the courts of what amounts to market manipulation for the first time.

The proceeding is being brought for a breach of section 11B of the Securities Markets Act 1988 (the legislation in force prior to the new Financial Markets Conduct Act 2013 regime). Under this section, market manipulation arises where an act or omission had, or was likely to have had, the effect of causing a false or misleading appearance relating to:

  • the extent of trading in securities; or

  • the securities’ supply, demand, price, or value. 

A person must have known (or ought to have known) that the act or omission would have that effect.

The FMA is seeking pecuniary penalties for the alleged offences. Under the Securities Markets Act 1988, the maximum pecuniary penalty for each occurrence of market manipulation is the greatest of the consideration for the transaction, 3 times the amount of the gain made (or loss avoided) on the transaction, or $1 million.

This proceeding follows last year’s first successful market manipulation proceeding against Brian Peter Henry. There, Mr Henry was ordered to pay a pecuniary penalty of $130,000 after admitting his actions in relation to trading shares in Diligent Board Member Services, Inc.

A copy of the FMA’s media release on the filing of proceedings can be found here.

FMA discontinues civil proceedings against directors of Capital + Merchant Finance Limited

Another of the FMA’s portfolio of action against finance company directors has been resolved, with the FMA discontinuing its civil proceedings against directors of Capital + Merchant Finance Limited (in receivership and in liquidation). In 2013, five directors of CMF pleaded guilty to criminal charges in relation to statements in offer documents and received varying sentences. 

The receivers and liquidators of CMF had each taken various actions to recover funds for CMF’s creditors. Due to the outcome of the criminal proceedings, combined with the actions taken by the receivers and liquidators and the limited personal assets of the directors, the FMA concluded that the cost of the civil proceedings would not be justified or in the public interest. Accordingly, the FMA has discontinued the proceeding.

A link to the FMA’s press release can be found here.

OPI Pacific Finance directors plead guilty

Two former directors of OPI Pacific Finance Limited (in receivership and in liquidation) have pleaded guilty to charges related to statements in the failed finance company’s offer documents. 

Providing finance for entities involved in commercial property investments and developments, OPI went into receivership in September 2009 and was put into liquidation in November 2011. At that time, more than 10,000 investors were owed approximately $247 million. Charges were laid by the FMA in November 2013 against all four OPI directors, with the trial of the remaining two defendants set down to being on 5 October 2015. 

A link to the FMA’s press release can be found here.

FMA issues first Stop Order against Green Gardens Finance Trust Ltd

In another first, the FMA has exercised its power to issue a Stop Order for the first time, issuing an order against Green Gardens Finance Trust Limited in response to concerns regarding investments being offered on their website.

The Stop Order prohibits GGFT from:

  • offering, issuing, accepting applications for or advertising debt securities; and
  • accepting further contributions, investments or deposits for debt securities.

A link to the FMA’s press release can be found here.

Overseas developments

English Court finds settlement discussions with regulator priviledged

The English High Court has recently held in Property Alliance Group Limited v Royal Bank of Scotland plc [2015] EWHC 1557 (Ch) that in principle, a company being investigated by the English Financial Conduct Authority has the right to withhold from inspection by third parties, communications that are part of genuine settlement discussions with the regulator (whether a settlement is reached or not). The basis for the right was in the particular enforcement, procedure and policy documents published by the FCA. 

The case concerned a litigant, in civil proceedings against a bank that had been the subject of regulatory investigation, who sought disclosure of documents that had been shared with the regulator. The litigant also argued that the bank had waived privilege in six documents by handing them over to the regulator. Prior to providing the documents, the bank had sensibly entered into a confidentiality and limited waiver of privilege agreement with the regulator, but the agreement contained “carve-outs” giving the regulator the ability to share the documents with other third parties, such as other regulatory agencies, and to make that material public or to disclose it further.  

The Judge held that the express provision that privilege and confidentiality would be maintained was not to be undermined by the existence of the carve-outs, unless the carve-outs had been relied on (i.e. the regulators had actually disclosed or published the documents). This demonstrates the value in putting appropriately worded confidentiality/limited waiver agreements in place when sharing privileged material with regulators. 

Under section 57 of New Zealand’s Evidence Act, “settlement negotiation” privilege applies in relation to disputes “of the kind for which relief may be given in a civil proceeding”.

A copy of the decision 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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