New Zealand’s Financial Markets Authority (FMA) today announces that it has censured Firma Foreign Exchange Corporation (NZ) Limited after finding it had materially contravened a number of its obligations as a licensed derivatives issuer (DI).
Firma NZ materially contravened its licence obligations because it:
- Failed to conduct product suitability tests for clients
- Repeatedly failed to meet net tangible asset requirements (DI’s must have net tangible assets of at least $1 million)
- Did not regularly provide statements to derivative investors regarding their investments (i.e. a list of a customer’s derivatives, their value, the amount of investor money held, and any amount allocated to margins)
- Failed to have adequate and effective systems, policies, procedures and controls.
James Greig, FMA Director of Supervision, said: “Firma’s breaches are highly concerning because clients were not assessed to see if they were suitable to trade derivatives and then, because they did not receive regular statements, had little visibility of their performance or portfolio.”
Mr Greig said Firma’s contraventions were persistent and systemic, so a censure was the appropriate and proportionate response. “Firma is publicly held to account and must provide us an action plan to remedy the issues and ensure future compliance,” he said.
Auckland-based Firma NZ provides foreign currency exchange forward contracts to retail clients in New Zealand. It has been licensed as a DI since 2015 and is a fully owned subsidiary of Firma Foreign Exchange Corporation, based in Canada.
Mr Greig said the FMA was in the process of conducting an in-depth monitoring review of the DI industry, following a sector risk assessment last year. Preliminary findings suggest derivatives issuers have inadequate product suitability assessments.
Mr Greig said while the review was ongoing, the FMA would not hesitate to use its regulatory powers to address any breaches found.
The results of the review will be collated for consideration of future industry guidance and/or standard condition review.
Recent enforcement action by the FMA in the DI sector includes directing Rockfort Markets to remove misleading advertising and bringing High Court proceedings against CLSAP NZ for AML/CFT breaches, which resulted in a pecuniary penalty of $770,000.