FSPR Forex Regulation Explained
New Zealand has become a very popular destination for brokers wishing to set up business. In some way, this is due to the relatively small entry barriers, but also it is due to its proximity and access to the Asia-Pacific area. In New Zealand. the primary regulator of all financial companies, including Forex brokers in New Zealand, is the FMA, or Financial Markets Authority. Brokers, also have to register their business with the FSPR (Financial Service Providers Register), and the FSCL (Financial Services Complaints Agency). All of these bodies allow investors to search their databases to determine whether a company is a regulated broker.
What is the FSPR?
The FSPR was introduced in 2010 and allows unregulated, over the counter brokerage firms and new start-ups the opportunity to gain customer confidence and credibility without having to go through the regulatory barriers in place in a number of other countries. This came about following the repeal of its 1995 Banking Act. The repeal gave overseas firms the opportunity to be FSPR registered brokers with very few of the requirements imposed by other better known regulatory bodies. These included minimum capital requirements, supervision, and qualification requirements. Guessing this all seems a little lax on the part of New Zealand, and choosing FSPR forex brokers to be a little risky. But things have changed more recently with a tightening up of the requirements.
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What FSPR regulated brokers required to do
Forex brokers in New Zealand may have had things a little easier than brokers in other countries, but the recent tightening of the requirements are making it more of a level playing field for New Zealand traders looking for protection of their investment. From 2013, FSPR listed brokers have to comply with the following:
- Have a physical presence within New Zealand
- The office must have a compliance officer
- The office has to keep client records and handle issues relating to the prevention of money laundering
- The FSPR listed company must be a registered corporation and be in compliance with New Zealand business laws
Surprisingly, or not, a number of firms lost their registered status following the change in requirements and a number of companies were struck off the register. Some say this has made it almost impossible or indeed viable for firms to stay on the register, with related costs making it financially difficult.
Can an FSPR regulated broker offer sufficient protection for traders?
There is no denying a company with FSPR status is subject to far less scrutiny from the regulator than those licensed and regulated by a more reputable agency. However, the new rules do state an FSPR company will have to be inspected and audited. In addition to this, a number of FSPR providers also have to be a member of a dispute resolution service. The service doesn’t have to be linked to the government but it does have to be approved by the Department of Consumer Affairs. Which is something not all regulatory bodies choose to do. If you are considering an FSPR regulated broker you should bear in mind you will be dealing with a firm that offers less protection than you would get with a firm regulated by a stricter regulatory jurisdiction. You should seriously consider choosing a broker which has been licensed by the FMA (Financial Markets Authority).
What does the FMA do?
The FMA, (Financial Markets Authority) is New Zealand’s government agency which is responsible for enforcing the law in relation to securities, financial reporting and companies with relation to financial services and securities markets. It is responsible for regulating financial advisers and brokers, securities exchanges, issuers and trustees. It is a member of IOSCO (International Organisation of Securities Commissions). And also a member of New Zealand’s Council of Financial Regulators. Along with the Reserve Bank of New Zealand, New Zealand Treasury and the Ministry of Business, Innovation and Employment. The aim of the Authority, when it was established in 2011, was to restore investor confidence following the global financial crisis and the large scale failure of a number of New Zealand companies. The aim of the Authority today is to promote and provide for the development of efficient, transparent and fair financial markets. It is also committed to taking strong action against any firms breaking the law and failing to meet expected standards. The FMA has published a document which lists the following priorities:
Governance and culture – the organization’s strategy, culture and values should be led by the board and directors
Conflicted conduct – participants in the market must effectively manage conflicts of interest
Capital market growth and integrity – activities of the regulatory should facilitate growth and support market integrity
Sales and advice – these should be in the best interests of investors and consumers
Investor decision making – investors should be able to access all the necessary resources to help them make more informed financial decisions
Effective frontline regulators – all frontline regulators should be effective at what they do
FMA efficiency and effectiveness – the Authority aims to be effective and an efficient regulator
The FMA has shown it is more than capable of living up to its word, as it has been involved in regulatory action against a number of well-known companies.
Filing a complaint in New Zealand
We mentioned previously that brokers in New Zealand are obliged to register with the FSCL. this is where traders and brokers are able to fill in documents if they want to make a claim, complaint or maybe a suggestion. There are several measures in place which brokers are required to follow. Should an FSPR registered broker be found to be committing a fraud or there is a problem with a trader’s activity the FSCL will take responsibility and investigate the case. Handing out a suitable punishment if a party is found to be guilty. Your best course of action, if you want to participate in Forex trading in New Zealand, is to choose a broker which is FMA regulated, FSPR and FSCL registered.