Financial Markets Conduct Act 2013, ss 462-464, 475 and 532 – appeal against ‘stop order’ issued by Financial Markets Authority prohibiting the offering of financial products – natural justice under statutory scheme – must there be an ‘actual financial product’ in existence? – must the FMA be satisfied, but for the stop order, the FMCA would be contravened? – was the FMA’s exercise of power supported by legitimate reason?
FZCO v Financial Markets Authority  NZHC 1701 per Jagose J.
This is the first case to consider the stop order jurisdiction of the Financial Markets Authority (FMA).
Validus FZCO is a Dubai corporation that is not registered to provide financial services in New Zealand. Validus came to media and FMA attention for offering financial services primarily to the Tongan community. In particular, at a seminar at Mt Smart Arena, Validus promoted a pool of crypto currencies, equities, forex and other products as “educational packages” (the pool).
A visual presentation referred to 2%-3% weekly loyalty rewards and compounding “rewards” of up to 350% after 60 weeks.
After the FMA imposed an interim stop order under s 465 of the Financial Markets Conduct Act 2013 (FMCA), Validus advised that the pool “has been removed and no longer exists”.
The FMA then gave Validus notice it intended to make a permanent stop order under s 462(1)(f) of the FMCA (being satisfied that a restricted communication relating to an offer, or intended offer, of financial products is false or misleading, or is likely to mislead or confuse, in a material particular).
Validus responded to the FMA’s proposal, disputing the existence of a proper foundation for the stop order as it was not offering, and did not intend to offer, financial products in the future.
The FMA made a stop order on 2 May 2023, prohibiting Validus from offering financial products. There were differences between the ultimate stop order and the proposed stop order earlier provided to Validus.
Validus appealed against the stop order on a question of law under s 532 of the FMCA.
Applicable principles – FMCA, ss 462-464, 475 and 532 – appeal on a question of law – natural justice under statutory scheme – examination of escalating provisions for notice and opportunity to be heard – natural justice to be construed in favour of the FMA’s exercise of enforcement powers – not to be correlated with natural justice as may arise in other contexts – does s 462(1)(f) require there to be an ‘actual financial product’ in existence at the time of the offer or intended offer? – must the FMA be satisfied that, but for the stop order, the FMCA would be contravened? – was the FMA’s exercise of power supported by legitimate reason?
Held: The appeal is dismissed.
Requiring a financial product to exist at the time of the offer or intended offer would undermine the statutory purposes of the Act and “retard, rather than advance, ‘fair, efficient and transparent’ financial markets”, the court held.
Moreover, the FMA didn’t have to be satisfied the FMCA would be contravened but for the stop order. The likelihood of future contravention or harm was material only to stop orders made under s 462(1)(b)-(d) or (h). The judge found the FMA had a legitimate reason to exercise its stop order power.