Financial Service Providers
General information about New Zealand FSP
The 21st century has seen an 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).
Companies and other entities which provide financial services in New Zealand are required to become registered as an FSP.
Characteristics
Entities and individuals who:
- live or have a place of business in New Zealand; and
- are in the business of providing financial services (in New Zealand or overseas) must register to provide that particular financial service on the FSPR.
Those entities and individuals will have to register as a financial service provider (FSP).
This means that entities which provide financial services in the territory of New Zealand are required to become registered as an FSP. However, if a New Zealand registered entity provides financial services internationally but not for New Zealand clients then it is not eligible to apply for FSP registration. New Zealand legislations do not restrict New Zealand registered companies or Limited pertnerships from providing financial services elsewhere.
Once registered, the FSP can offer:
- Financial adviser service
- a broking service
- Acting as a depot taker as defined in the Reserve Bank of New Zealand Act 1989
- Being a registered bank
- Keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons
- Providing credit under a credit contract
- Operating a money or value transfer service
- Issuing and managing means of payment (for example, credit and debit cards, cheques, travellers cheques, money orders, bankers drafts, and electronic money)
- giving financial guarantees
- participating in an offer of securities to the public in either of the following capacities (within the meaning of those terms under section 2(1) of the Securities Act 1978)
- as an issuer of the securities
- as a promoter
- acting in any of the following capacities (within the meaning of those terms under section 2(1) of the Securities Act 1978) in respect of securities offered to the public
- changing foreign currency
- entering into derivative transactions, or trading in money market instruments, foreign exchange, interest rate and index instruments, transferable securities (including shares), and futures contracts on behalf of another person
- providing forward foreign exchange contracts
- acting as an insurer
- providing any other financial service that is prescribed for the purposes of New Zealand complying with the FATF Recommendations, other recommendations by FATF, or other similar international obligations that are consistent with the purpose of this Act.
Therefore, the activities a FSP can undertake are virtually unlimited and (subject to the laws of the jurisdiction where it operates) there are no restrictions as long as it does not take deposits from the New Zealand public or do business in New Zealand.
Any entity either New Zealand or registered somewhere else can be a New Zealand FSP.
The central aspects of setting up a Finance Company in New Zealand are as follows:
- Firstly, to register an entity which will provide financial service;
- Secondly, joint a Dispute Resolution Scheme (in most cases); and
- Thirdly, apply for a FSP registration.
What is Dispute Resolution Scheme?
FSPs who offer to provide a financial service to retail clients must belong to a dispute resolution scheme before they begin the registration process, except some financial advisers who will be covered by their employers scheme membership.The main purpose of dispute resolution schemes is to provide consumers access to redress, and promote confidence in financial service providers.
Regulation and taxation
The main legislation that concerns the proposed company as a Finance Service Provider would be under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the Act).
The Financial Service Providers (Registration and Dispute Resolution) Act 2008 (“the Act”) requires those persons providing the financial services to register. However, the Act states that it only applies to a person or entity who is ordinarily resident in New Zealand or has a place of business in New Zealand.
In orther words, your entity must have a physical place of business in New Zealand and local consultant who deals with your FSP's clients. Virtual office solutions and mail forwarding addresses do not qualify.
The Registrar interprets “place of business” as the place where the company or entity usually transacts its business. The succefful applicant has to advise the Registrar and provide supporting documentation as to how the entity will actually be transacting its business in New Zealand and how it will be operating the financial services listed in the application from this address.
Please, note, if you do not intend to provide financial services from New Zealand and do not wish to establish a working office in New Zealand, you are not eligible to apply for FSP registration.
The following information needs to be provided to apply to be a FSP:
- New Zealand registered entity name or number (as registered with the Companies Office);
- any trading names;
- business address;
- address for communication and email address;
- the financial services that the FSP provides;
- the name of the consumer dispute resolution scheme the FSP has joined;
- the full legal name and any aliases of every director, controlling owner and senior manager of the entity; and
- the date of birth, gender, and the residential address of every individual director, controlling owner and senior manager of the entity.
The FSPR will carry out a criminal history check with the Ministry of Justice of the convictions which will disqualify any of the individuals named in your application (directors, senior managers and controlling owners). You will be advised of the result in two to five working days.
If all criminal history checks are clear, registration as a financial service provider is complete.
Ideal structure for FSP
If the FSP is registered as a limited partnership or look-through company and the partners or shareholders are not domiciled in New Zealand then the profits of the FSP can be attributed to its shareholders and this tax is paid at the place of registration of the partner or shareholder. This is because the Limited Partnership and Look Through Company structures attribute the losses and income to their shareholders not to the company. As long as the shareholders are not tax residents of New Zealand, they will pay tax in their country of residency. As long as the Company does not make money from New Zealand sources, it follows that the FSP is not taxed in New Zealand in the same manner as the trust regime for New Zealand non-resident trusts.
The potential for tax structuring created by this regime is immense. The FSP can borrow money from its own shareholders and then invest this money into property; shares etc and then repay the loan at interest to a non resident trust whose beneficiaries are the shareholders, thus providing both tax minimization and asset protection simultaneously.
Please note this offer is very limited.
Please be aware the New Zealand Register of FSP takes the registration of FSP very seriously and the successful registration of an FSP is not a fast process epsecially when it is owned and operated by foreign interests. We will engage very strict due dilligence and compliance processess to esnure that all FSPs registered by us are operated in a bona fide manner.
However, if you do not intend to provide financial services in the territory New Zealand and do not wish to establish a working office in the New Zealand, we are not able to assist you.
As one of the leading providers in the industry we are concerned to maintain New Zealands reputation internationally in this sector, therefore those seeking a solution which compromises on integrity should seek FSP srevices from other providers.
