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The Financial Service Providers (Registration and Dispute Resolution) Act 2008 (Act) in broad terms requires that anyone providing financial services must be registered. But working out whether you need to be registered as a financial service provider (FSP) can be difficult, and specialist advice can be invaluable in navigating through the complexities in the Act.
What constitutes a financial service is very widely defined under the Act. It includes the following (among many others – there are numerous categories):
providing a financial advice service (which itself is a very wide definition);
providing a regulated client money or property service (including a custodial service) – which includes a number of people called “brokers” prior to this legislation;
providing consumer loans and credit – and this includes hire purchase agreements and cash loans;
mobile traders;
keeping, investing, administering or managing money, securities or investment portfolios on behalf of other people;
providing means of payment and money transfers or issue;
providing mortgages, saving and transactional accounts and loans;
changing foreign currency (whether directly or as a derivative);
It is imperative that you obtain legal advice if you may be a financial service provider or, if you are certain you provide a financial service, obtain advice before registration to ensure you are registered correctly. Full legal compliance often requires compliance with other legislation (not just the Act) in conducting your financial service business or you may need to register under more than one category. There are very few exemptions under the Act and it is crucial not to blindly rely on assumptions that they apply.
A person breaching requirements to be registered and a member of an approved dispute resolution scheme is liable on conviction to imprisonment for a term not exceeding 12 months or a fine not exceeding $100,000 (or both) and a corporate entity in breach is liable to a fine not exceeding $300,000.
Conversely, penalties for false and misleading information being provided upon registration apply if you register under the Act when you do not provide a financial service. Inadvertent registration might only lead to deregistration but could also create other liability issues or claims against you, including claims by your business customers. As an example, not all businesses that were formally called brokers were providing a regulated service. However, that needs to be considered very carefully since often (for example if you link customers with an insurer or financier) your customers may be reasonably relying on your advice or assistance (despite disclaimers that you do not provide advice), which may mean you are considered to be providing a financial advice service and should ensure that you meet compliance obligations.
Likewise, many people that do register or register their business as an FSP might be unaware that they are likely to need to comply with one or more other statutes. As examples:
the Fair Trading Act 1986 (particularly so when they use standard form contracts and primarily provide services for household or personal services for customers);
the Credit Contracts and Consumer Finance Act 2003 (if credit is provided under consumer credit contracts);
the Anti-Money Laundering and Countering of Financing of Terrorism Act 2009 (AML/CFT Act) has very wide application and applies to a large number of businesses involved in providing financial services and/or offering financial products. There are substantial regulatory and compliance obligations on businesses required to comply with the AML/CFT Act and extremely significant consequences for businesses and individuals that do not comply (fines and criminal liability for entities and individuals);
the Financial Advisers Act 2008 (if advice is offered relating to investment products ancillary to financial services); or
the Financial Markets Conduct Act 2013 (FMCA) where you are offering or dealing with financial products (as defined in that statute). A substantial number of financial products that a financial service provider may provide also require them to be licensed to comply with the FMCA, and non-compliance for individuals or businesses can lead to very substantial penalties.
In summary:
many businesses that provide financial services will need to register as a FSP – and as a requirement of that registration, join a dispute resolution scheme offered by a licensed scheme provider.
you should not decide to register (or not register) if you remain uncertain of your status and compliance obligations, since the penalties or liability for making a wrong decision can have significant consequences.
if you are a financial service provider, then registration will likely not be your only issue - there will likely be numerous additional technical or complex compliance obligations under the FSP Act and other legislation that you need to fulfil.
This is one area where legal advice can prevent very substantial legal and commercial risk to you and your business, and we are well placed to help you with all of your compliance requirements. Contact Anthony Kuran on 09 306 0611 or @email or Andrew Knight on 09 985 2531 or @email