The Financial Markets Authority (FMA) has put the derivatives issuer, Firma Foreign Exchange Corporation NZ, on notice for failing to meet basic regulatory requirements.
The authority found that the company did not carry out checks to see if derivatives were suitable products for its customers, repeatedly failed to hold minimum levels of financial assets and did not provide appropriate financial statements to customers regarding their investments.
“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,” FMA director of supervision James Greig said.
“Firma’s contraventions were persistent and systemic, so a censure was the appropriate and proportionate response.”
He said the company must provide an action plan to remedy the issues that were identified.
Auckland-based Firma NZ provides foreign exchange futures contracts to local investors. It has been licensed since 2015, and was a subsidiary of Firma Foreign Exchange Corporation which is based in Canada.
The company was approached for comment.
The derivatives sector – which includes futures contracts, swaps and options – is a niche and advanced investment option, with only 23,000 retail customer accounts in New Zealand.
They are widely regarded as being incredibly risky and not being suitable for most everyday investors.
The FMA put the sector under the spotlight last year and found a number of weaknesses that related to how clients’ money was handled and how vulnerable customers were managed.
Since then, the authority has been in the process of conducting an in-depth review of the industry.
“Preliminary findings suggest [derivatives issuers] have inadequate product sustainability assessments, while their customer bases have expanded significantly since Covid-19,” Greig said.
In the past year, the FMA had directed derivatives issuer Rockfort Markets to suspend what it called misleading advertising and it brought High Court proceedings against CLSA Premium NZ for breaching anti-money laundering duties.
The court action against CLSA resulted in a financial penalty of $770,000.