The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has censured Western Union Business Solutions (Australia) Pty Ltd for materially contravening key Standard Conditions of its derivatives issuer licence relating to net tangible assets (NTA).
Following an investigation, the FMA was satisfied that, at certain times from July 2019 to June 2021, Western Union materially contravened Standard Conditions 9(1), 9(2) and 9(6) which require:
- at all times, a licensed derivatives issuer’s NTA to be, at least, the greater of $1 million or 10% of average revenue;
- a licensed derivatives issuer to have at least 50% of the required NTA in cash or other liquid assets and any remaining balance in either additional cash or cash equivalents, or other liquid assets; and
- except with the express written approval of the FMA, if a licensed derivatives issuer has 90% or less of the required NTA, it must not under any circumstances enter into any transactions with clients that could give rise to any further liabilities or other financial obligations.
Western Union maintained it had the ability to replenish its NTA to the required level, it did so from time-to-time, it was able to provide services to clients with no issues, and there was no actual loss or risk of loss to clients arising from the contraventions. However, in the FMA’s view, these matters did not remedy, or reduce the scale of, the contraventions as the Standard Conditions must be met at all times. It is not sufficient for a licensed derivatives issuer to only prove it can meet the requirements.
James Greig, FMA Director of Supervision said: “The net tangible assets obligations for licensed derivatives issuers are important requirements intended to reduce risks of client harm and loss.”
“Western Union’s contraventions left open the possibility of client harm and loss, and its continued entry into transactions that gave rise to further liabilities increased the possibility of harm. We were concerned about the significant number and value of transactions that occurred while Western Union was in breach, as well as the duration of the breach, making this a material contravention.”
“This case is a continuation of our heightened scrutiny on derivatives issuers, following our 2020 , which found the risk profile of the DI industry was high. Derivatives are high-risk financial products and trading them is not suitable for most retail investors. Other derivatives issuers should take note of our recent activity and ensure they are fully compliant.”
The FMA acknowledges that:
- Western Union self-reported (although it did not self-identify) the contraventions of Standard Conditions 9(1), 9(2) and 9(6) to the FMA; and
- based solely on information Western Union has provided, Western Union:
- remedied the contraventions promptly;
- has implemented remedial action to prevent further contraventions; and
- is now in compliance with Standard Conditions 9(1), 9(2) and 9(6).
Western Union was granted a derivatives issuer licence by the FMA in January 2015. The company is headquartered in Sydney, Australia and the censure relates to its New Zealand business.
Western Union was censured under section 414(2)(a) of the Financial Markets Conduct Act 2013.
