The New Zealand offshore finance company is often seen as a highly unregulated option based in a well-reputed country. It has been the subject of significant marketing and has been pushed by every online promoter. However, this guide will attempt to dispel many of the myths around these finance company structures and give you the truth about them.

Introduction: New Zealand as an Offshore Tax Haven Jurisdiction

There was a time in the 1990’s and 2000’s when New Zealand laws and regulations lagged those of their peers. The abject lack of regulation of companies, based in New Zealand that solely operated offshore, created an almost mythical tax haven status for the nation. The regulatory environment was such that, if you fell under the above definition, you could operate with impunity and with no regulatory oversight.

Subsequently, New Zealand saw a significant increase in these types of companies who were doing everything from raising funds, offering FX brokerage services, offering finance and deposit services, making loans, and providing general financial services. If these services were not offered to NZ citizens you were free to operate as you saw fit.

The Financial Services Provider Register

In response to a perceived risk to New Zealand’s reputation, the government introduced the Financial Services Providers Register (FSPR). The idea was simple, NZ would require anyone providing financial services to be registered on the FSPR and to disclose their ownership interests and what categories of services they were providing.

The overall expectation was that the FSPR would create transparency and allow the clamp down of false registrations from overseas operators. In fact, what occurred was that the FSPR registration provided legitimacy for the offshore finance companies.

Typically, what was occurring was that you registered your business on the FSPR and then if certificate to all your potential customers as a form of licensed legitimacy. Hey…New Zealand trusts us, therefore, so should you.

For quite a few years this worked, and companies could operate, effectively, as a bank or financial institution without any form of registration or oversight. However, what people thought they were getting as part of their registration was not what they had bargained for.

The Reality of the FSPR and the New Zealand Offshore Finance Company

Let us get something completely clear from the start. There actually is no category of NZ domiciled company as above. What the offshore promoters are offering is a standard NZ limited company that has been placed on the financial services register.

Myths of the FSPR

It is important that you are clear that the FSPR is a registration, not a license. There are no checks or regulatory burdens to clear and you cannot treat it as a license to do anything other than operate a standard limited liability company. Additionally, there is NO authority to operate a finance company implied by being on the FSPR.

Offshore Promoters will typically suggest you can undertake the following activities with an FSPR registration:

• Banking and Deposits
• Payment Processing
• Lending
• Credit Contracts
• Factoring
• Debit Cards etc.

However, the reality is that you can undertake all these operations with a standard New Zealand Limited company if you are only transacting offshore. The minute that you deal with an NZ-based customer, you will need to be LICENSED by the local regulator (Either the FMA or the RBNZ).

Subsequently, what you are doing is operating in what is considered the wholesale market which currently requires no FSPR registration.

Changes to the FSPR

Following the swamping of the register with significant numbers of fake offshore finance companies, the Financial Markets Authority (FMA) undertook a review and decided to make some significant changes to the local requirements.

They required the appointment of a local, NZ based, director for every single incorporated entity. This was a major development because it did not just require the use of a nominee but a business partner.

Unfortunately, the local director is expected to be intimately involved in every business decision and carries the legal risk for any errors. As you can imagine, this is a risky endeavor and comes at a significant cost.

Additionally, the FMA and internal affairs are now closely scrutinizing FSPR registration requests. They now require you to demonstrate that you have a connection, or business, within New Zealand. Without that factor, you are likely to be denied access to the financial services register.

Banking Options for a NZ FSPR Entity

One of the other hurdles that you are likely to face is securing local banking facilities. The NZ financial institutions have cracked down upon rogue FSPR companies and have made it exceedingly difficult to obtain bank accounts. Under the guise of AML/CFT, the banks have de-risked their exposure to offshore companies and there are additional checks that an FSPR-listed firm needs to go through.

In all honesty, your chance of securing local banking facilities whilst operating a, primarily offshore-based company, is likely to be limited. You are welcome to try the major banks, BNZ, Westpac, ANZ, and ASB but it will be exceedingly difficult indeed.

Final Words

Hopefully, you have gained some insight into what an FSPR and financial services company are defined as in New Zealand. Despite what the offshore promoters may have told you, they are not a licensed entity, and the local regulators are now extremely interested in stopping exactly these sorts of spurious registrations.

Subsequently, OCBF has been advising anyone with FSPR companies to start the process of moving their operations to other jurisdictions. The New Zealand regulatory regime is being tightened significantly and this has made it difficult for offshore based entities to operate here. Additionally, the requirement for a local director has seen prices for these services explode given the inherent, personal risk.

Feel free to reach out to us with any questions you might have as many of the myths and lies perpetuated by marketers are still being told.