New Zealand to increase supervision of margin foreign exchange brokers, says government official

The New Zealand government is reviewing its requirements for registering as a financial services provider (FSP) in the country, in a move to combat its growing reputation as a regulatory safe-haven for margin foreign exchange brokers.

The number of retail forex brokers that have registered with the New Zealand FSP Registrar has risen dramatically in recent years, as new capital requirements and leverage limits have rolled out in the US, Europe, Japan and Australia.

"The New Zealand government is aware of offshore FSPs seeking to register here in order to take advantage of New Zealand's reputation, and to give the appearance of being subject to a greater level of regulation than registration on its own provides," an official at the Economic Development Group at New Zealand's Ministry of Business, Innovation and Employment in Wellington tells FXRetail. "The government is considering measures to strengthen the registration system to deal with the risks that these type of registrations present to New Zealand's reputation."

Requirements for operating an FSP in New Zealand came into effect when the Financial Service Providers Act was passed into law in 2008. At this stage, its key requirements are to register with a dispute resolution scheme and retain at least one physical address in the country.

By comparison in Australia, brokers selling contracts-for-differences and leveraged forex trading to retail clients have to hold net tangible assets greater than A$500,000, or 5% of average revenue, as of this year. The amount is set to double to A$1 million, or 10% of average revenue, by January 31, 2014.

The Ministry official declines to elaborate on the measures under consideration, but adds that 180 companies have been deregistered on the basis that they are not trading in New Zealand.