You may have noticed that New Zealand has become a very popular destination for Forex brokerages due to the relatively small barriers to entry and its access to the Asia-Pacific area. In the past it was possible for companies wishing to offer FX services in New Zealand without even having an office in the jurisdiction. This is due to the fact that appearing on New Zealand’s Financial Service Provider register (FSPR) is not the same as being regulated in New Zealand allowing firms based in other countries to gain FSPR status.
What is New Zealand’s Financial Service Providers Register?
Introduced back in 2010, the Financial Service Providers Register has given unregulated OTC brokerages and new start-ups the opportunity to gain credibility and accrue customer confidence without facing the significant regulatory barriers to entry which are present in many other developed first world countries. This has been in part made possible by New Zealand’s move to repeal its entire 1995 Banking Act. This is not to say that there are no laws governing the provision of financial services but rather New Zealand is a unique proposition in the sense that is possible for an international firm to be registered in the country without any minimum capital, qualification or supervision requirements.
Recently the country has tightened up what is required of firms wishing to appear on the countries Financial Service Providers Register (FSPR). These extra requirements significantly increased what was expected from a financial services provider. As of 2013 firms were required to
- Have a physical office within the country.
- Have a compliance officer employed within the said office.
- Client record keeping and anti-money laundering to be handled by the firm’s office in the jurisdiction.
- The Financial Service Provider must be a registered corporation and comply with the countries business laws.
These new rules saw a large number of firms lose their status as a Financial Service Provider (FSP), with the countries regulator striking off a large number of firms who did not comply with the new rulings. It has been said that these new rulings mean that is no longer viable for some firms to maintain their registration, with industry experts stating that it costs at least $25 to 30k a year to be featured on the countries FSPR.
Consumer Protection and the Financial Service Providers Register
Companies listed as a Financial Service Provider are subject to significantly less regulatory scrutiny than firms operating as regulated entities from other reputable jurisdictions. Though the new rulings from the countries regulators means those firms are subject to both inspection and auditing. In addition to these measures many NZ Financial Service Providers are required to be a member of a dispute resolution service. Not all these services are tied to the government but they must be approved by the department of consumer affairs.
Recent changes regarding what is required to appear on the Financial Service Providers Register (FSPR) have led to many firms losing their status as a registered provider of financial services. Firms now face a small but significant cost if they want to remain a registered Financial Service Provider which may put some firms of pursuing the status. Many Forex brokerages have maintained their status as a FSP. Those considering trading with a brokerage that is a FSP should realise that they will not receive the same level of protection as they would when dealing with a firm that is regulated in a tighter regulatory jurisdiction.