Jarden Securities gets slap on wrist from NZ’s FMA for violations prior merger

Rick Steves

The regulation allows derivatives issuers to deposit money into the trust account to safeguard against the risk of a shortfall, but the FMA found the OMF did it for business-related payments to third party providers.

NZX publishes regulatory agenda

New Zealand-based derivatives issuer Jarden Securities Limited has been censured by the Financial Markets Authority (FMA), the country’s financial watchdog.

The slap on the wrist was due to contraventions by OM Financial Limited (OMF) as a licensed derivatives issuer (DI). OMF co-mingled derivative investor money with its own money, a breach of its DI obligations.

According to the FMA, OMF amalgamated with Jarden in March 2021, so the amalgamated entity inherited the property, rights and liabilities of OMF and Jarden, including the DI licence. As such, the FMA has censured the amalgamated entity.

The regulatory framework requires DI licenses to hold investor money on trust, separate from the licensees’ own money.

This ensures client money is protected from the risk of loss that may occur from co-mingling, such as if the business becomes insolvent.

OMF breached the Financial Markets Conduct 2013 (the FMC Act) between September 2015 and July 2020, prior to the amalgamation with Jarden.

OMF self-reported the issue to the FMA in September 2020, after NZ Capital Securities (now Jarden) acquiring OMF in 2019.

OMF transferred its own money into the trust account designated to hold derivative investor money, involving at least 150 payments totaling $US1million.

The regulation allows derivatives issuers to deposit money into the trust account to safeguard against the risk of a shortfall, but the FMA found the OMF did it for business-related payments to third party providers.

James Greig, FMA Director of Supervision, said: “A derivatives issuer failing to handle client money appropriately is serious and we have previously signaled our concerns around this issue in our 2020 DI Sector Risk Assessment report. We have little tolerance for firms not meeting their obligations in this area.

“Although no OMF clients lost money as a result of this issue, we considered that investor money was at risk while the necessary separation processes were not in place. The breaches warranted a public censure due to the significant period over which they occurred, as well as the value and number of transactions.

“While we acknowledge that OMF self-reported these issues to us, managing client money in accordance with the regulations is a fundamental, minimum requirement for any licensed derivatives firm. In these circumstances, the self-reporting of the issues is expected and does not prevent the FMA from taking action and using our regulatory tools to hold firms to account. Jarden has engaged constructively with the FMA through this process and implemented changes to ensure this issue doesn’t happen again.”

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