The New Zealand Financial Markets Authority, or FMA, has announced on Wednesday that it will suspend the derivatives issuer license of one EncoreFX (NZ) Limited. This comes after the parent company of EncoreFX placed the firm under voluntary administration.
Placed Under Administration Some Time Ago
While the FMA had suspended EncoreFX’s license, the company will be allowed to close out any positions that it already has with existing retail clients. This comes from the FMA itself within the statement today.
EY’s Adam Nikitins, Rees Logan, as well as Stewart McCallum had been appointed as administrators of EncoreFX, as of the 30th of March, 2020. They have been providing regular updates to the authority of New Zealand in regard to the administration as a whole.
New Owner For EncoreFX Needed
EncoreFX was a provider of international payments, risk management, and foreign exchange (forex) services. Back in August of 2016, the company was issued its derivative issuer license. In the current events, the suspension of that same license took place on the 24th of April, 2020, at 5 pm.
The FMA, through the public statement, explained that a business must have a derivatives issuer license from the regulator in order to provide derivatives products to retail investors. The FMA stated that this license suspension could be lifted, should the administrators find a new owner for EncoreFX. Notably, they must find an owner that satisfies the FMA that EncoreFX will be capable of meeting the requirements for a licensed derivative issuer.
The watchdog made a point of stating that it understands that EncoreFX’s majority of users are mainly wholesale.
The Coronavirus Strikes Again
EncoreFX had filed an assignment for bankruptcy back on the 30th of March, 2020. This comes in accordance with the Bankruptcy and Insolvency Act of Canada, or BIA, section 49(1). Due to this, the position of Licensed Insolvency Trustee was given to EY.
The company itself was founded by one Paul Lennox and Peter Gustavson, according to the letter addressing the clients. This comes from the Times Colonist, a Canadian newspaper service. According to the report, they were forced with no other option than to go into administration due to its customers primarily defaulting on their obligations. This new shift in behavior was attributed to the coronavirus pandemic, which caused a massive change in the FX markets.
To add insult to injury, the letter to the newspaper explained that certain customers who owe a sizable amount of capital to EncoreFX notified them of their inability to pay this back. This was due to these clients going into foreign administration proceedings themselves, making timely payment of debts to EncoreFX impossible.