MR No. 2021 – 51
The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko – has formally censured Jarden Securities Limited for 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.
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.
A fundamental obligation for DI licensees is 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.
The FMA was satisfied that OMF breached the Financial Markets Conduct 2013 (the FMC Act) between September 2015 and July 2020, prior to the amalgamation with Jarden. First NZ Capital Securities (now Jarden) acquired OMF in 2019. OMF self-reported the issue to the FMA in September 2020.
The contraventions related to OMF transferring its own money into the trust account designated to hold derivative investor money. This involved at least 150 payments totalling $US1million. Derivatives issuers may deposit money into the trust account to safeguard against the risk of a shortfall. However, the FMA concluded that the money deposited by OMF was made for business-related payments to third party providers, not to safeguard against the risk of a shortfall arising.
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,” Mr Greig said.
“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.”
Jarden has been working with the former OMF teams to review and improve processes to align them with Jarden group practices.
The censure was issued under section 414(2) of the FMC Act, which allows the FMA to censure a licensed firm if the FMA is satisfied a business has materially contravened its obligations.