Finance firm CLSA Premium recorded $15m loss before FMA imposed restrictions on trading

Last year the FMA launched proceedings against CLSAP NZ alleging breaches of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

Financial services firm CLSA Premium NZ, formerly KVB Kunlun, slumped to a $15m loss prior to being effectively shut down by the Financial Markets Authority for failing to meet audit and assurance requirements.

In accounts just filed to the Companies Office, CLSAP NZ showed a net loss of $14.97m in the year ended December 31, 2019 as operating income tumbled from $77.9m to just $3.26m.

The company has not yet filed accounts for the 2020 financial year.

CLSAP failed to obtain an unqualified audit opinion from BDO, leading the FMA in September last year to impose conditions preventing it from offering services to retail investors relating to derivatives trading.

"The FMA has found that CLSAP NZ failed to meet some of its audit and assurance obligations for 2019 and it is not confident the firm will be able to meet those obligations in the near future," the FMA said in September.

In its audit report for the 2019 financial year BDO said the basis for its qualified opinion was lack of access to client related historical archived information.

"The Group's information technology related systems were maintained by a third party software provider for a substantial part of the financial year. Management's ability to access these systems was restricted by the software provider during the year and thus the Group had to migrate to new systems. As a result, client related historical archived information could not be accessed," BDO said.

BDO noted the group's income and commission expenses - generated and incurred through clients' trading activities - amounted to $3.26m and $3.33m respectively in the consolidated statement of profit and loss. Obtaining sufficient audit evidence for those figures and other operating expenses of $.18m was highly dependent on access to the IT systems.

"Management's inability to provide direct access to the systems, restriction of access to client records and supporting documentation meant we were unable to obtain sufficient appropriate evidence around the completeness, existence and accuracy of the financial statement line items above. Consequently, we were unable to determine whether any adjustments to these amounts were necessary and the related impacts on the statement of changes in equity and statement of cash flows."

CLSAP NZ's immediate parent company is registered in the British Virgin Islands but its ultimate parent is listed on the Hong Kong stock exchange.

In January the company told shareholders it expected to record a consolidated net loss of approximately HK$72 million for the year to December 31, 2021. That compares with an audited consolidated net loss of approximately HK$180 million reported for the previous corresponding period.

Last year the FMA filed civil High Court proceedings against CLSAP NZ alleging breaches of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

The charges cover transactions worth nearly $50 million, and the company faces a fine of up to $2m if convicted.

The FMA said CLSA's directors at the time - Rongjun (June) Zhang, Songyuan Huang (Benny Wong), Stefan Liu, Robert Manwarring Noakes and Richard Clive Pearson - were not parties to the lawsuit.

In a June 2020 statement, the FMA claimed CLSAP NZ failed on "numerous occasions" to conduct sufficient customer due diligence and enhanced customer due diligence, terminate business relationships, report suspicious transactions and keep records in accordance with the law.

The alleged breaches were also "representative of CLSAP NZ's general approach to compliance with its obligations" under the AML/CFT over that time, the FMA claimed.