Brokerage backed itself to get licence

Photo / AP

An Auckland currency brokerage that was in breach of its reporting requirements and shut down last week after an unexpected surge in the Swiss franc never considered it would not get a new licence from regulators.

Its auditor, however, flagged last June that if the Financial Markets Authority did not grant the company's licence, it would be in danger of having to close.

The Queen St company, which operates the Excel Markets trading system, said last Friday that most of its clients holding franc positions had been on the losing side of trades after Switzerland's central bank suddenly removed the currency's peg against the euro.

Global Brokers said client losses that could not be covered were passed on to the brokerage. As a result, it was unable to meet minimum regulatory capital requirements of $1 million and had to shut down, the firm said.

It emerged this week that the company had been in breach of regulations by not filing audited financial statements to the Companies Office.

The FMA was aware of the breaches and is dealing with them while it considers the company's application for a derivatives issuers licence.

This new licence is required because of changes to the law that came into effect last December.

Following reports of this non-compliance, Global Brokers yesterday filed the statements, with auditor commentary prepared by BDO.

BDO's notes to the statements say the company had "no reason to believe" the FMA would not have approved its licence application.

The financial statements reveal the company recorded a $780,000 loss in the year to March 31 on revenue of $520,000.

The FMA said on Wednesday that Global Brokers had up to 800 clients around the world, but only about 40 in New Zealand.

FMA spokesman Andrew Park said Global Brokers had indicated that there were 11 outstanding New Zealand accounts left to repay, holding a total of $9000 in client funds.

In total, the brokerage still needed to repay $280,000 of the $2 million it had held in client accounts, Park said.