Vivier and Company Ltd v Financial Markets Authority

• Jurisdiction: New Zealand
• Judge: Brewer J
• Judgment Date: 25 September 2015
• Neutral Citation: [2015] NZHC 2337
• Docket Number: CIV-2015-485-513
• Court: High Court
• Date: 25 September 2015

In the Matter of an appeal under's 42 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008

BETWEEN

Vivier And Company Ltd

Appellant

and

Financial Markets Authority

Respondent

[2015] NZHC 2337

CIV-2015-485-513

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Appeal under s42 Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) (appeals from Registrar's decisions and FMA directions) against a decision of the respondent to deregister the appellant from the Register of Financial Service Providers — the appellant was an Irish company that was registered in New Zealand (NZ) as a financial service provider (FSP) — the Financial Markets Authority (FMA) was sent a complaint with an accompanying article, suggesting that the appellant was under investigation in Ireland — the FMA did not disclose this information to the appellant and ignored requests for further information on its deregistration proposal — directed deregistration on the grounds that no financial services were being provided to NZ clients and therefore s18A FSPA (purpose of FMA's powers relating to deregistration) applied — whether the decision to deregister was an exercise of a discretion — whether s18A required that services be provided in NZ — whether the FMA had failed to consider mandatory considerations — whether the respondent had failed to observe the appellant's rights to natural justice by failing to have regard to ensure it had sufficient information on which to base its decision, failing to disclose relevant information to Vivier and failing to provide further information on request.

Counsel:

A N Riches for Appellant

M T Scholtens QC and C R Allan for Respondent

Counsel: Mary Scholtens QC

JUDGMENT OF Brewer J

Introduction

1 The Financial Services Providers (Registration and Dispute Resolution) Act 2008 (“the Act”) establishes a register of financial service providers (“the Register”). The appellant (“Vivier”) was registered as a financial service provider on 21 March 2014.

2 On 26 June 2015, the Financial Markets Authority (“FMA”) directed the Registrar of Financial Service Providers to deregister Vivier. 1 That direction is now appealed by Vivier.

The Act

3 The purposes of the Act are: 2

• (a) to promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and

• (b) to promote and facilitate the development of fair, efficient, and transparent financial markets

4 In order to achieve these purposes, the Act requires financial service providers to be registered and requires them to be members of a dispute resolution scheme if they provide financial services to retail clients.

5 The Register enables the public to access information about financial service providers. It enables the Registrar and other regulators to regulate financial service providers. 3

6 Among the prescribed purposes of the Register is: 4

• (c) to conform with New Zealand's obligations under the [Financial Action Task Force on Money Laundering established in Paris in 1989] Recommendations.

7 It is important to recognise that the Act itself does not create a licensing regime for the provision of financial services. Nor does it regulate the provision of financial services. Other legislation does that. 5

8 The Government became concerned about the use of the registration provisions in the Act by some offshore based entities. This concern led to the amendment of the Act on 1 July 2014. 6 Ms Scholtens QC for the FMA included in her bundle of authorities a (slightly redacted) Cabinet paper which sets out the concern. 7 It was not objected to by Mr Riches for Vivier and I think it gives useful background to the amendments to the Act — most of which are self-evident as to purpose.

9 In summary, the concern was that by becoming registered as Financial Service Providers, but not carrying on business as such in New Zealand — which would have required submission to and compliance with the regulatory regimes specific to the various categories of financial services — offshore entities could give the impression to offshore customers that they were resident in and/or regulated in New Zealand:

This presents a risk to New Zealand's reputation as a well regulated jurisdiction and to the reputation of legitimate New Zealand-based financial service providers.

10 The 2014 Amendment Act inserted provisions which are at the heart of the appeal:

18A Purpose of FMA's powers relating to deregistration

The purpose of section 18B is to provide for the deregistration of a person (A) if A's registration has, will have, or is likely to have the effect of-

• (a) creating, or causing the creation of, a false or misleading appearance with respect to the extent to which A-

  • (i) provides, or will provide, financial services in New Zealand; or

  • (ii) provides, or will provide, financial services from a place of business in New Zealand; or

  • (iii) is, or will be, regulated by New Zealand law in relation to a financial service; or

• (b) otherwise damaging the integrity or reputation of-

  • (i) New Zealand's financial markets; or

  • (ii) New Zealand's law or regulatory arrangements for regulating those markets.

• 18B Consideration of deregistration of financial service provider by FMA

• (1) The FMA-

  • (a) may, but is not required to, consider a referral under section 18(1A); and

  • (b) may otherwise consider giving a direction under this section at its own discretion (if a referral has not been made).

• (2) If the FMA decides to consider the referral or otherwise decides to consider giving a direction under this section, the FMA must, after taking into account section 18A, consider whether it is necessary or desirable for a financial service provider to be deregistered.

• (3) If, after acting under subsection (2), the FMA decides to give a direction to the Registrar under this section to deregister the financial service provider, the FMA must-

  • (a) give the financial service provider-

    • (i) written notice of its intention to give the direction; and

    • (ii) the reasons why it intends to give the direction; and

    • (iii) a date (being not less than 20 working days after the date of the notice referred to in subparagraph (i)) by which the applicant may make written submissions to the FMA in relation to its proposed direction; and

  • (b) consider any submissions received in accordance with paragraph (a)(iii); and

  • (c) either,-

    • (i) if the FMA remains of the view that the financial service provider should be deregistered, direct the Registrar to deregister the provider; or

    • (ii) if the FMA decides that the provider should not be deregistered, advise the Registrar accordingly; and

  • (d) give its reasons for the direction or advice, as the case may be.

• (4) A provider who is not satisfied with a direction given under this section may appeal to the High Court under section 42.

• (5) Sections 19 and 20 do not apply if a financial service provider is deregistered as a result of a direction given under subsection (3)(c)(i).

The deregistration of Vivier

11 On 28 February 2015, a member of the public sent an email to the FMA attaching a copy of an electronic news article about Vivier. The first paragraph gives the flavour:

A New Zealand company accused in an Irish TV investigation of tax fraud and money laundering is poised to drop completely off the radar screen of this country's anti- money laundering regulations.

12 In the body of the article reference was made to New Zealand regulatory legislation: 8

A spokesman for the Department of Internal Affairs (DIA) told interest.co.nz DIA supervises Vivier and Company for compliance with New Zealand's Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act). However, this won't be the case for much longer.

“The Department of Internal Affairs initiated a desk-based review of Vivier and Company Limited's AML/CFT programme under New Zealand's Anti-Money Laundering and Countering Financing of Terrorism Act 2009 late last year. In the course of carrying out the review we have established that Vivier is not currently carrying on any financial activity in the ordinary course of business in or from New Zealand. Their financial activity is outside the territorial scope of the AML/CFT Act”, the DIA spokesman said.

“This means they are currently not captured by the AML/CFT Act. We will be reviewing the list of DIA's reporting entities on our website in March, which will include deleting Vivier as one of our reporting entities”.

DIA is one of three New Zealand AML/CFT Act supervisors alongside the Reserve Bank and Financial Markets Authority (FMA). Each of the three supervises compliance by different entities. See more on this here.

Asked about Vivier and Friends Mutual, an FMA spokesman said the FMA isn't currently actively monitoring either entity and there are no specific matters of concern relating to the FMA's regulatory jurisdiction that have been raised with it.

13 Further reference was: 9

As a registered New Zealand financial services provider, Vivier is a member of Financial Services Complaints Limited (FSCL), which its website notes is a New Zealand Government approved Dispute Resolution Scheme.

FSCL CEO Susan Taylor told me FSCL hasn't received any complaints about Vivier and Company or Wewege.

“When processing and accepting applications from financial service providers to become FSCL participants, we rely on the fact that the participant has successfully registered on the Financial Service Providers register (overseen by the Ministry of Business, Innovation & Employment, or MBIE). In other words, The Registrar is satisfied the financial service provider is fit to be registered and has completed the...