The past couple of months have led to some major developments for Forex brokers registered in New Zealand. After a number of signals from clients, New Zealand’s regulatory authorities have begun cleaning up the mess which the space has become after a number of questionable brokerages established their operations in the country and subsequently shut down.
The negative impact has been felt across the industry including a number of companies which have been operating legitimately also affected by the regulatory crackdown by the Financial Markets Authority (FMA).
After months of debate, the legal framework which the watchdog used to show the door to a number of forex providers has been questioned by one of the companies which got delisted from the Financial Service Providers Register of New Zealand.
The Case That Sets a Precedent
In August, Auckland-based financial services provider Vivier and Company decided to appeal the decision of New Zealand’s regulator to deregister the firm. The case rested on the FMA wrongly relying on information cited in an online media which was defamatory to companies not providing their services from within New Zealand.
In fairness, this is the case for a large number of the companies listed on the FSPR, but as was highlighted by the decision released by the Wellington High Court, this was not sufficient for the FMA to mandate the deregistration of any company.
With the case attracting substantial attention from the financial services providers registered in New Zealand, the outcome has been closely followed with the possibility of a slew of appeals surfacing after a positive outcome for Vivier and Company.
Following the decision by the Wellington High Court, the country’s financial regulator is facing a slew of appeals. A precedent has been established and regardless of the reasons for their registration suspension, it's possible that we are going to see many more cases filed in the coming weeks.
First Forex Broker Appeal Case
While a number of financial services providers registered in New Zealand have indeed been abusing the fact that their companies are registered in the country to bring to attention that they are regulated in New Zealand, authorities may have to treat every occurrence on a case by case basis when suspending licenses.
Pakistani-owned forex brokerage Excelsior Markets has just become the next company to challenge the financial regulator’s decision, with the lawyer representing the company claiming that the financial regulator has overstepped its powers.
The concerns of the local watchdog that a number of companies connected to offshore owners are well-founded. One of the biggest forex schemes to blow up in Russia this year was related to the company Forex Trend which was registered with the FSRP.
The advantage which similar companies gain from claiming to be regulated in what is perceived to be a very strict regulatory regime can lead to clients preferring to deposit with offshore brokerages registered with the FSPR, but not regulated by the FMA, which only oversees companies providing services to New Zealand residents.
The parent company which is the first forex broker to appeal the FMA decision is based in the United Arab Emirates. Excelsior Markets' lawyer has accentuated that the financial regulator made an error of law by deregistering the company from the FSPR.
Looking into the "Near" Regulatory Framework Future
It remains to be seen how the story is ultimately going to play out for companies registered in New Zealand. One thing is certain - while a loophole in the financial Regulation framework is present, there will be companies taking advantage of it.
While a change in the legal definition of financial services providers is likely to take some time, brokerages and other financial services companies may have to begin looking for alternative jurisdictions. After all, the FMA is not likely to stop receiving complaints from foreign citizens regarding FSPR listed financial services companies, and the next logical step would be to close all available loopholes in current financial services legislation.
