FMA (Financial Markets Authority)

At one time, New Zealand was a favorite destination for offshore brokers who wanted reputable regulation with little responsibilities. Since 2013, New Zealand requires foreign Forex brokers to register and fully comply with the FMA, keeping a physical office presence in the country. This reduced the number of NZ-registered FX brokers but improved the quality of the country's regulatory environment.

Financial Markets AuthorityThe FMA, established under the FMA Act 2011, regulates the capital markets and financial services in New Zealand. The FMA principally regulates only domestic firms. On the other hand, foreign firms can register as an FSP (Financial Service Provider). However, derivative issuers (including Forex brokers) need to be fully regulated by the FMA to be able to deal with the New Zealand residents and be considered regulated in New Zealand.

Who should register under FMA?

The firms and individuals who should register under the FMA are:

  • Derivatives issuers (this category includes CFD/Forex brokers and binary options brokers)
  • Managed investment scheme managers
  • Discretionary investment management service providers
  • Authorized financial advisers and qualifying financial entities
  • Licensed financial product markets
  • Designated settlement systems
  • Crowdfunding platforms.
  • Peer-to-peer lenders.
  • Supervisors
  • Licensed independent trustees
  • Accredited audit bodies
  • NZX (registered exchange) including NZSX (main board), NZAX (alternative market), NZDX (debt market), FSM (Fonterra shareholders market), and NZCX (derivatives market)

Most of these categories need to register with the Financial Service Provider Register (FSPR), which means getting an FSP number, before applying for the FMA license.

Registration and compliance requirements

Forex brokers seeking to be licensed by the FMA as derivative issuers would need to meet the following requirements:

  • Should register as an FSP.
  • Should register as a member of the Financial Dispute Resolution Service (FDRS).
  • Minimum net tangible assets of 1 million NZD or 10% of average revenue (measured using last 3 years), with half of the NTA being held as cash or other highly liquid assets.
  • Must have a physical office in New Zealand.
  • A Compliance Director should be present in the office.
  • Client handling, KYC and AML procedures should be performed from the New Zealand office and not from elsewhere.
  • The Forex broker should be a registered corporation and comply with the business law within the New Zealand jurisdiction.
  • Forex brokers should subject themselves to periodical audits and comply with the industry standards.
  • Maintain sufficient liquidity to pay customers without delay.
  • Should not misrepresent facts and should disclose risks to customers.
  • Should honor each and every executed trade.
  • Must demonstrate how conflicts of interest are eliminated within its business model.

How does FDRS settle disputes?

  • Whenever there is a problem with a Forex broker, a client can file the complaint with the FDRS by phone, web form, email, or postal mail.
  • If the client has not yet made a formal complaint to the FSP, the FDRS will guide the client to file it.
  • The FDRS will then try to facilitate the complaint resolution between two parties. If both parties are satisfied, they sign a binding settlement agreement.
  • If facilitation isn't effective, the FDRS will employ a conciliation with the direct involvement of a resolution practitioner (with formal training). This too can end in a binding settlement agreement.
  • If neither facilitation nor conciliation help to reach the settlement, the FDRS uses the formal adjudication process. The adjudicator performs thorough investigation, asks parties for comments, and uses best judgment and industry's best practices to issue the final decision.

Powers at FMA’s disposal

  • Deregister or suspend licenses of those Forex brokers that do not comply with regulations. In April 2020, the FMA suspended EncoreFX's derivatives issuer license after its business was put into voluntary administration.
  • Seek criminal prosecution or civil proceedings against a market participant. In September 2020, Pegasus Markets and Michael Reps, its director, were found guilty of all criminal charges brought by the FMA for breaches to the FSP Act (basically, the company continued to claim to be registered with the FSPR after it had been deregistered).
  • Issue warnings against unauthorized Forex brokers. In 2020, the FMA issued 16 warnings regarding unregistered business attempting to do a business with the New Zealand citizens.
  • Impose conditions on licensed companies. In September, 2020, the FMA imposed conditions on CLSA Premium NZ Limited (formerly known as KVB Kunlun) that prevent the company from dealing with retail customers in relation to derivatives, except for in some limited circumstances.
  • Give directions on correcting the company's behavior or processes. In March, 2021, the FMA directed Rockfort Markets to remove or edit their misleading social media promotion.
  • The FMA can stop promotion or distribution of a financial product or service.

The FMA published a total of 151 warnings and alerts with four sets of proceedings launched in the High Court and achieving convictions in two legal cases during 2019/2020 financial year.

Conclusion

Overall, the Financial Markets Authority in New Zealand remains a "tough" regulator that stands well for the investors' rights. If you see an FMA-regulated Forex broker and you can confirm that they do have the license, it is likely going to be an honest company.

If you want to share your opinion, observations, conclusions, or to ask a question regarding New Zealand's Financial Markets Authority (FMA), feel free to start a discussion on our Forex forum.


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