FMA takes Rockfort Markets to task over misleading advertising

The FMA has directed derivatives company Rockfort Markets to change its advertising. Photo / File

The Financial Markets Authority (FMA) has directed licensed derivatives issuer Rockfort Markets to remove or amend what it said were misleading advertising statements on its social media channels and website.

The FMA said it had become aware that statements in Rockfort's Facebook advertisements, and on its website, created the impression that trading in derivatives was "safe" or had not presented a balanced view of the risks.

"In fact, trading in derivatives, and in particular CFDs (contracts for difference) offered by Rockfort as a derivatives issuer (DI), is inherently risky," the FMA said in a statement.

The FMA found Rockfort had other statements on its website that were likely to mislead investors or were unsubstantiated, including:

"We (Rockfort) exceed the requirements of the Legislation and keep separate client money from our operating money", when keeping client money separate is a requirement of the legislative requirements for DIs, and
Rockfort is a licensed and regulated "forex and share broker", when its licence is as a DI and these services are not licensed in New Zealand.

The FMA said there is a requirement for advertisements of regulated financial product offers to include a prominent statement that a product disclosure statement (PDS) is available.

The FMA identified that certain Rockfort advertisements did not include this statement, and other advertising was inconsistent with the PDS.

The regulator initially raised its concerns with Rockfort and the company took some steps to amend or remove its advertising materials, but the regulator considered its concerns were only partially addressed.

The FMA has issued a direction order to Rockfort to remove or amend specified marketing material.

James Greig, the FMA's director of supervision, said direction orders were an important part of the FMA's toolbox.

"In this situation we considered an order and public statement was appropriate and proportionate, given our earlier engagement with Rockfort did not fully address our concerns," he said.

"We have a range of options to deal with poor conduct and by naming the firm, we want to reinforce our expectations around misleading advertising materials, particularly in the high-risk derivative sector,"Greig said.

"Derivatives are generally not a suitable investment for most retail investors. Derivatives issuers advertising to retail investors should not create the impression that derivatives are a 'safe' investment," he said.

"When trading in any financial market there is an element of risk, but trading in derivatives is an entirely speculative activity and carries with it a huge degree of risk," he said.

There are 24 licensed derivative issuers in New Zealand and about 23,000 retail account holders.

"It's very much a niche product. It's complex, high-risk and is generally not going to be a safe for most retail investors," Greig told the Herald.

Today's action follows a report on derivatives published in July last year, in which the regulator identified key risks in the sector and highlighted areas where the sector could improve its compliance.

The FMA is also considering industry feedback on its proposed guidance for advertising of financial products.