FMA Censures CTRL For Derivatives Issuer Licence Breaches

The Financial Markets Authority – Te Mana Tātai Hokohoko – has censured CTRL Investments Limited (CTRL) for breaching the obligations of its Derivatives Issuer licence. CTRL failed to meet its minimum Net Tangible Asset (NTA) requirements between 31 March 2023 and 29 March 2024. It also breached other obligations.

CTRL notified the FMA of the NTA breach in October 2023 following FMA enquiries about the late filing of its financial statements for the year ended 31 March 2023. The breach was caused by the failure of an overseas electronic money institution CTRL used to hold a significant amount of the company’s assets. The electronic money institution’s failure and subsequent impairment of implicated assets eroded the value of assets that comprised the NTA, and this breach triggered requirements that CTRL:

• Provide the FMA with a plan of how the NTA levels would be replenished within 10 working days of discovering the breach
• Provide the FMA with daily reporting of its NTA levels until the NTA levels were restored to the required amount

CTRL was also required to obtain an assurance report within four months of its balance date (31 March 2023) and provide copies of its assurance and NTA reports to the FMA within 20 business days of receiving the reports.

CTRL failed to meet these requirements within the prescribed timeframes.

FMA Director of Response and Specialist Supervision, Peter Taylor, said: “The FMA expects licensed market service providers to understand and comply with their legal obligations. Derivatives are inherently risky, and it is important that the FMA has confidence in derivative issuers and their level of regulatory compliance. In situations where issuers hold the majority or all their assets in one entity, we expect the issuer to manage the risk appropriately. Although CTRL had no open positions or retail clients at the time of the breaches, its approach to the various contraventions and the materiality of those conventions warrants a censure.”

CTRL has now restored its NTA levels to the required amount. CTRL cooperated fully with the FMA during its enquiries.

Notes

The market services licensee obligations CTRL breached are:

· DI Standard Condition 9(1) by failing to meet minimum NTA requirements;

· DI Standard Condition 9(5)(b) by failing to provide within the prescribed timeframe a plan of how NTA levels will be replenished to the required amount;

· DI Standard Condition 9(5)(c) by failing to provide within the prescribed timeframe daily NTA reporting to the FMA during the NTA shortfall period;

· DI Standard Condition 11(2) by failing to provide the FMA with a copy of the Assurance and NTA reports within the prescribed timeframe; and

· Regulation 248(1) of the Financial Markets Conduct Regulations 2014 (the FMC Regulations) by failing to obtain the assurance report within the prescribed timeframe.

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