The world has seen escalating regulation of the banking industry whereby it has become increasingly difficult to obtain a banking license with increasing government controls and requirements. The use of the word bank creates immediate compliance issues including capital/lending ratios, minimum founding capital requirements and central bank regulation of the institution so much so that few can now meet the onerous requirements of most jurisdictions including the traditional offshore tax havens. New Zealand has however legislated for the fast and relatively uncomplicated creation of a corporation which can operate virtually in the same manner as a bank whilst avoiding the restrictive controls of banking legislation. Under the Financial Service Providers (Registration and Dissolution Act 2008 (‘the Act’), a New Zealand company can be registered as a financial services provider. This means that the company is effectively registered by the Ministry of Economic Development to offer financial services or in the words of the legislation becomes a financial services provider.

The meaning of ‘financial service’ is defined in section 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008. There are some exceptions set out in section 7 of the Act, such as lawyers and accountants who provide financial services as an incidental part of their business. Common examples of financial service providers required to register are:
– Building Societies
– Credit Providers
– Credit Unions
– Financial Advisers (including financial planners)
– Finance Companies
– Foreign Currency Exchange Dealers
– Fund Managers
– Insurers
– Investment Portfolio Managers
– Issuers
– Money Changers
– Registered Banks
– Some professional trustees (such as trustees of debt securities or superannuation scheme trustees).

Why New Zealand?

Why New Zealand? New Zealand repealed its entire Banking Act in 1995 and thereby facilitated free entry in to the business of banking. There are several laws regulating a financial business, but New Zealand is unique in the sense that an international banking entity can be established without capital requirements, qualification requirements or excessive supervisory requirements. If banking services are not offered to the public in New Zealand, the requirements of prospectus, supervisory trustee and investment statements as set out in Part II of the Securities Act 1978 do not apply. FSPs offering services to non residents also operate outside the geographical scope of the Non-Bank Deposit Taker (NBDT) regulations as defined in the Reserve Bank of New Zealand Act 1989. The NBDT regime only applies to FSPs offering financial services to the public in New Zealand.

So what is new? The New Zealand government opened the doors to its long awaited Financial Service Provider Register (FSPR) on August 16, 2010. Banks, Building Societies, Credit Unions, Finance Companies and other Financial Service Providers are required to register. The FSPR is the result of New Zealand passing The Financial Service Providers (Registration and Dispute Resolution) Act 2008 into law on September 29 2008. This law is meant to strengthen the confidence in New Zealand based Financial Service Providers by implementing a requirement for all such entities and individuals to be registered in the FSPR. This requirement applies regardless of whether an FSP is offering services to clients located within or outside New Zealand. FSPs offering services to retail customers, whether within or outside New Zealand also need to become members of a Government approved Dispute Resolution Scheme (DRS) or the Government Reserve Scheme before being able to register as an FSP. A DRS is basically a third party Arbitrator authorized by the government to help settle any dispute in which an FSP might find itself with a retail client. This requirement is meant to strengthen consumer protection in the financial industry. Joining a DSR is a rather straight forward process, so if you are planning to offer services to retail customers this requirement would not constitute an obstacle or cause any significant delay when establishing your FSP. Please visit our FAQ section for the definitions of retail and wholesale customers.

So what does all this mean?
It means that if you offer financial services using a New Zealand based Company and all your clients are based outside New Zealand, your Company will still operate outside the geographical scope of Part II of the Securities Act 1978 and it will not be subject to regulation by the Reserve Bank as a non-bank deposit taker. You should however register your Company as an FSP in the new Register and if you are offering services to retail customers your Company should also join a government approved Dispute Resolution Scheme before applying for FSP registration.

The FSP Advantage
In our opinion the new FSP registration requirement for a New Zealand Company offering Financial Services is an excellent measure to increase the credibility and usability of such entity. With a registered FSP you will not be dependent on legal interpretations and regulatory exemptions when required to demonstrate that your Company is indeed a bona fide provider of Financial Services and properly registered as such. All registration documents are issued by the New Zealand government (Ministry of Economic Development) and legalized with Apostille for international recognition.

Companies and other entities which provide financial services in New Zealand are required to become registered as an FSP. Contact info@licensedbank.com for more information on getting started today!