What is a New Zealand FSP? – Why Many Traders Assume That a New Zealand FSP is a Forex Broker License
New Zealand was once an attractive jurisdiction for unregulated forex brokers, however, changes by the local regulator, the New Zealand FMA, now require a physical presence in order to legally operate as an FSP.
How New Zealand FSPs Became a Popular Industry Term
In the start of 2010, New Zealand became a hotspot for non-regulated forex brokers looking for a reputable jurisdiction to incorporate their businesses. The popularity of New Zealand was due in part to an overhaul of the financial system at the time, which eventually paved the way for what is known as a New Zealand FSP or Financial Service Provider.
Savvy corporate service providers jumped on the opportunity to promote New Zealand FSP registration as an authentic way to obtain a forex broker license. Upon successful registration, forex brokers would then claim to be regulated in New Zealand, placing the FSP registration number at the footer of their website. This practice still goes on today in St. Vincent, where many forex brokers falsely claim to be regulated in St. Vincent when in fact they have only registered a local International Business Company (IBC).
Given the global recognition of New Zealand and relatively limited information about FSP entities at the time, many investors would have the impression that the forex broker they were trading with was in fact regulated in New Zealand, which was never the case. Similar to St. Vincent, the broker was simply registering a company, not undergoing the due diligence and other checks required by the majority of forex broker regulators.
The New Zealand FMA and the Definition of Derivatives
This all changed in 2017, when the New Zealand Financial Market Authority, also known as FMA, began receiving complaints from investors. The majority of the complaints concerned FSPs which advertised themselves as regulated forex brokers yet were operating in New Zealand without physical presence. Because most of the disputes stemmed from brokers whose owners were not New Zealand citizens, the FMA had difficulty resolving these client complaints.
Due to the uptick in these type of disputes, the FMA adopted new changes which are set to take place at the end of 2017. In short, the FMA chose to broaden the definition of the term derivative to include forex & CFD products. Previously, a license was not required to offer forex and CFDs in New Zealand, hence the FSP loophole that many unregulated brokers exploited. The simple change to how the term derivative is defined now means that any broker looking to operate an FSP in New Zealand must obtain a Derivatives Issuer License, which is granted by the FMA.
Given the background provided, we strongly warn investors to steer clear of forex brokers operating as unlicensed New Zealand FSPs. Although most of these firms have been shut down, some still exist. In addition, those interested in acquiring a forex broker license in New Zealand should be extremely cautious when offered to buy a forex broker holding FSP registration. Due to the changes we’ve discussed above, an existing New Zealand FSP that does not hold the Derivatives Issuer License is worth very little as it cannot legally operate until a license is granted.
If you are looking to apply for a forex broker license in New Zealand, our team of consultants are more than happy to assist you further. In addition, if you’ve been offered to purchase a New Zealand FSP, we would be more than pleased to provide our own professional assessment of the offer.
To explore either option in more detail, don’t hesitate to contact us today!
