Proposed Financial Activities Of A Crypto Currency Company and Exchange and Whether it Can Be Done In New Zealand as a Registered FSP
The proposed business of the FSP may include:
1. Receipt of fiat and cryptocurrencies and crypto assets (“assets”) from clients,
2. Holding such assets as client money or client property in trust for, and on behalf of, clients,
3. Receipt of investment returns, dividends, and other proceeds arising from client assets, and holding such proceeds as client money or client property in trust for, and on behalf of, clients,
4. Transfer of client money or client property in fulfilment of client orders, including for the purchase of, or subscriptions for, financial products sold by or issued by other parties (not the FSP),
5. An example of the financial activities that could be facilitated would be the receipt of assets from clients, in the form of fiat or cryptocurrencies, holding those funds as client money or client property, transferring those funds to a promoter or issuer, who will issue or sell interests in a fund, scheme or entity that owns, operates or rents out computer servers, which generate revenue and incur expenses in mining cryptocurrencies or adding blocks to a blockchain. Under this example, the FSP would not be establishing or operating the fund, scheme or entity, but would be facilitating client investments in, holdings of, disposals of, and distributions from, such funds, schemes or entities.
Questions the opinion is to address
This opinion addresses the regulatory and financial services and banking licencing, registration, and authorisation in New Zealand, required for the proposed provision of the services by the FSP:
1. Can the FSP lawfully provide the services of receiving and holding assets in the nature of cryptocurrencies and crypto assets as well as fiat currencies and traditional financial assets, from, for, on behalf of, and in trust for clients, according to the laws of New Zealand, and from a New Zealand business location?
1.1. Can these client money or property services be provided to:
1.1.1. New Zealand retail investors or retail clients
1.1.2. New Zealand wholesale investors or wholesale clients
1.1.3. Non-New Zealand retail investors or retail clients
1.1.4. Non-New Zealand wholesale investors or wholesale clients.
2. Can the FSP lawfully provide the services of receiving assets, revenue and proceeds from the issuers or purchasers of such client money or client property, according to the laws of New Zealand, and from a New Zealand business location?
3. Can the FSP lawfully provide the services of sending or transferring client money or client property to third parties, or to other locations, upon the instructions of clients or clients’ authorised delegates or agents, according to the laws of New Zealand, and from a New Zealand business location?
4. Can the FSP undertake the kind of activity of facilitating client investment in a crypto mining operation, as described?
Relevant definitions and concepts
5. The service of receiving and holding assets may be regulated in New Zealand as a “client money or property service.” The service is defined in s 431W Of the FMCA as:
A client money or property service—
(a)
is the receipt of client money or client property by a person and the holding, payment, or transfer of that client money or client property; and
(b)
includes a custodial service.
6. Client money is defined as:
client money means money—
(a)
received in connection with acquiring, holding, or disposing of a financial advice product or otherwise in connection with a financial advice product; and
(b)
received from, or on account of, a client by a person (A) (and not on A’s own
account)
7. Client property is defined as:
client property means property (other than money) to which the following apply:
(a) the property is a financial advice product, is a beneficial interest in a financial advice product, or is received in connection with a financial advice product; and
(b) the property is received from, or on account of, the client by a person (A) (and not
on A’s own account)
8. A financial advice product is defined in s 6 of the FMCA as:
financial advice product means—
(a) a financial product (as defined in section 7); or
(b) a DIMS facility; or
(c) a contract of insurance; or
(d) a consumer credit contract; or
(e) any other product declared by the regulations to be a financial advice product; or
(f) a renewal or variation of the terms or conditions of an existing financial advice product
Analysis
9. A crypto-asset may or may not be a “financial product” under s 7 of the FMCA depending on its characteristics. For example:
9.1. If the crypto-asset is a representation of a right to a commodity such as a Kg of wheat, held in storage by or for the issuer or for the holders of the crypto-asset, arguably it is not a debt security (since wheat is not “money” and a debt security is a right to be repaid money that has been lent to or deposited with or is owing by someone).1
9.2. a stablecoin issued by an issuer who promises to repay **money is a debt security and therefore a financial product.
10. A custodial service is also defined as in terms of holding a financial advice product in trust for a client.
** “Money” is defined to include “money’s worth” however this extention does not apply to the definitions of debt security, investor money and investor property, see s 6, FMCA. So, a debt security is strictly a right to be repaid money and not the right to be paid a non-money commodity, or an ownership interest in a non-money commodity.
11. Inasmuch as the crypto assets that the FSP holds or handles in this way are not financial products (and not financial advice products), the service is not regulated by the FMCA (and also requires no licence or authorisation in New Zealand) however, it is best to register as an FSP and as providing a financial service than be accused of not being registered.
12. Inasmuch as the crypto-assets that the FSP holds or handles in this way are financial products, the FMCA states:
(1)
This subpart and other legislation regulate client money or property services as follows:
(a)
the Financial Service Providers (Registration and Dispute Resolution) Act 2008 provides for when a person in the business of providing the service must be registered under that Act and when that provider must be a member of an approved dispute resolution scheme. The provider is not required to hold a market services licence:
(b)
a person who provides the service must—
(i) disclose information to retail clients under section 431X; and
(ii) exercise care, diligence, and skill under section 431ZA; and
(iii) handle client money and property in accordance with sections 431ZC to 431ZH, including holding the money or property on trust (if those duties apply under section 431Z(2)):
(c) section 431ZI sets out who is responsible if those duties are contravened.
13. Accordingly, the registered FSP that the client is considering acquiring, can provide the services in connection with crypto-assets and fiat money without being required to hold any other licence or authorisation in New Zealand.
14. The regulation summarised above of client money or property service applies to services received by a client or an investor in New Zealand, regardless of where the person providing the service is resident, incorporated or carries on business (s 387, FMCA).
15. The FSP is free, under New Zealand law, to provide the same services to clients outside New Zealand, noting that foreign financial services and financial products laws may apply to the provider depending on the locations of the clients, and the location of the FSP and/or its assets and operations.
16. In summary, the services may be provided:
16.1. In respect of crypto-assets and fiat money and other traditional financial assets that are financial products, and those that are not financial products, and
16.2. To clients that are New Zealand retail clients or investors (noting that additional disclosure and conduct requirements apply to the way the service is provided), and
16.3. To clients that are New Zealand wholesale clients or investors (noting that some conduct requirements apply to the way the service is provided), and
16.4. To clients that are non-New Zealand clients or investors, both retail and wholesale, (noting that some conduct requirements apply to the way the service is provided).
17. A registered FSP may also provide the services of issuing e-money and transferring money or value without any further authorisation or licence.
18. However, the issuing of e-money to New Zealand retail clients or investors may constitute the making of a regulated offer of a financial product, which is a debt security, and which may require a licence or Product Disclosure Statement under the FMCA and the Non-bank Deposit Takers Act 2013 respectively. Rather than issuing such a financial product, the FSP may wish to hold client money in trust for New Zealand retail clients, as a regulated client money or property service, as discussed above, which is not a regulated offer of a financial product and does not require a licence or authorisation.
19. An FSP is restricted from receiving client money or property for the acquisition of a contravening product, when the provider knows, or ought reasonably to know, that the product is a contravening product (s 431ZB, FMCA). This primarily applies to New Zealand retail investors who would be investing in regulated offers, and only those that contravene the FMCA or the regulations under it.
20. Subject to the above, the FSP can receive and pass on client money from investors to the promoters or operators of a crypto-mining operation, as part of a client money or property service. It can also receive, in respect of those client investments, the returns or proceeds, and hold them as client money or property. No separate licence or authorisation is required.
Conclusion
21. A registered FSP is able to provide the scope of services detailed above, without requiring any further licencing or authorisation in New Zealand, and the service may be provided to clients both in New Zealand and outside New Zealand, both wholesale investors or wholesale clients, and retail investors or retail clients.
New Zealand is a great place to run a crypto company for several reasons:
1. Progressive Regulatory Environment: New Zealand is known for its supportive yet clear regulatory approach to financial and technological innovation. The Financial Markets Authority (FMA) has provided guidance on how cryptocurrency businesses should operate within the country, offering clarity that helps companies navigate compliance effectively. This reduces regulatory uncertainty, which is beneficial for crypto businesses looking for stable ground to build on.
2. Blockchain-Friendly Ecosystem: New Zealand has a growing blockchain ecosystem, with various blockchain associations and educational resources supporting industry growth. Universities and tech hubs are increasingly incorporating blockchain into their programs, helping create a knowledgeable workforce ready to support crypto companies.
3. Favorable Business Climate: New Zealand ranks highly for ease of doing business, often placing in the top rankings globally. This includes simplified procedures for starting a business, low levels of corruption, and supportive government initiatives for startups and tech companies. This makes it easier for crypto firms to set up and operate efficiently.
4. Innovation-Driven Culture: The country has a culture of embracing innovation and entrepreneurship. With a history of tech startups and government-backed programs to support tech-based companies, New Zealand provides an environment that encourages creativity and fosters innovative solutions in the cryptocurrency space.
5. Tax Benefits for Crypto Companies: The New Zealand government has introduced a crypto-friendly tax framework that includes benefits for certain types of crypto transactions. Cryptocurrencies are treated as property, not currency, allowing for some tax flexibility. In 2020, New Zealand also became one of the first countries to allow cryptocurrency salaries, further reinforcing its open approach to crypto.
6. High-Quality Infrastructure and Connectivity: New Zealand has excellent internet infrastructure and connectivity, which is essential for running a blockchain or cryptocurrency business. With advanced digital networks, crypto companies can ensure seamless transactions, high security, and reliable user experiences.
7. Access to Talent: The country attracts tech talent from around the world due to its high quality of life, scenic beauty, and work-life balance. New Zealand’s growing tech sector, combined with immigration programs that welcome skilled workers, allows crypto companies to access top talent locally and internationally.
8. Reputation for Trust and Security: New Zealand’s reputation as a trustworthy and secure country is an asset for crypto companies. Investors and clients are more likely to feel confident engaging with a business in a jurisdiction known for its stability, transparency, and commitment to security.
9. Sustainability and Green Energy: Many blockchain and crypto projects are looking for eco-friendly ways to operate, especially as the industry faces criticism for energy consumption. New Zealand’s commitment to renewable energy sources and sustainability aligns with the goals of environmentally-conscious blockchain projects, providing a foundation for responsible crypto operations.
These factors combined make New Zealand an attractive and strategic location for launching and operating a crypto company, especially for businesses prioritizing regulatory clarity, innovation, and sustainability.
NEW ZEALAND IS IDEAL FOR YOUR CRYPTO COMPANY JURISIDICTION:
An FSP adapts itself ideally to the Fintech World, especially Crypto, and it has all the services of a Bank and Crypto Exchange or Service Provider, in a great jurisdiction, without needing the massive capital requirements.
These services can be expanded to include the following and are not limited at all to just these items. The New Zealand FSP company can add at anytime the following services ideal for a Crypto Company:
– Issuing and managing a means of payment (inclusive of crypto)
– Operating a money or value transfer service
– Giving financial guarantees
– Changing foreign currency
– Trading financial products or foreign exchange on behalf of other persons
– Keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons
– Wholesale and/or generic financial adviser services
– Broking service (including a custodial service)
– Custody
If you are interested in expanding your business to New Zealand or have any questions please contact me, Ryan@businesslistingsgroup.com
Also, if you have any financial services companies for sale, please let us know, we can engage to assist you in the sale of your Bank, Brokerage License, MSB, EMI, etc. We also offer these types of firms for sale through our mergers and acquisitions division.