The Financial Markets Authority has censured another derivatives trading firm for failing to meet its license obligations, as the regulator cracks down on poor compliance.
Last year, the FMA published a risk assessment report which found there is a ‘high risk’ derivative issuers were not correctly handling clients’ money and not checking products were suitable for retail investors, among other issues.
In the past two years, the regulator has taken action against four firms including; suspending AxiCorp Financial Services’ license, censoring a small unnamed firm, requiring Rockfort Markets to remove advertising, and filing a civil suit against CLSAP Premium for alleged anti-money laundering breaches.
The FMA today censured Firma Foreign Exchange Corporation NZ, a subsidiary of a Canadian firm of the same name, which offers currency exchange, global payments, and volatility management using forward contracts.
Firma’s website tells investors on its volatility management home page that it offers a high standard of regulatory compliance.
“Trust is the backbone of small business – our world-class cyber security and rigorous compliance won’t let you down. Every transaction meets the highest security standards so you can do business with total peace of mind,” the website says.
However, the FMA said the subsidiary had “materially contravened its licence obligations”.
Firma allegedly didn’t test whether products were suitable for clients, didn’t hold the minimum net tangible assets of $1 million, and did not provide investors with regular statements regarding their investments.
FMA director of supervision, James Greig said Firma was being held publicly accountable because the breaches were “persistent and systemic”.
“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,” he said.
He said it was critical derivatives issuers are compliant because they offer high-risk financial products which aren’t suitable for most retail investors.
Licensed issuers must ask retail investors to provide information about their understanding of derivatives and assess whether their products are suitable for the individual.
“We have previously flagged the sector as high risk, with client suitability tests as a key area of focus,” Grieg said.
The regulator is in the process of completing an in-depth monitoring review of NZ’s 25 derivatives issuers, with the full report expected to be finished before the end of the year.
The FMA said preliminary findings suggest issuers have inadequate product suitability assessments, while their customer bases have expanded significantly since the covid-19 pandemic began.
