Jarden reprimanded for breach

BROKER Jarden has been formally censured by New Zealand’s markets watchdog for a breach of derivatives issuer obligations.

The Financial Markets Authority (FMA) — Te Mana Tatai Hokohoko — yesterday announced the censure for contraventions by OM Financial Ltd (OMF) as a licensed derivatives issuer (DI). OMF amalgamated with Jarden Securities Ltd in March this year.

OMF comingled derivative investor money with its own money, a breach of its DI obligations, the FMA said in a statement.

The regulator said the amalgamated entity was censured because it inherited the property, rights and liabilities of OMF and Jarden, including the DI licence.

The watchdog said it was satisfied OMF breached the Financial Markets Conduct Act 2013 between September 2015 and July 2020, before the amalgamation with Jarden.

First NZ Capital Securities — now Jarden — acquired OMF in 2019 and OMF selfreported the issue to the

FMA in September 2020.

The contraventions were for OMF transferring its own money into the trust account designated to hold derivative investor money, and involved at least 150 payments totalling $US1 million, the FMA said.

A fundamental obligation for DI licensees is to hold investor money in trust, separate from the licensees’ own funds, to protect client money from the risk of loss that might occur from comingling, the FMA said.

Derivatives issuers may deposit money into the trust account to safeguard against the risk of a shortfall. However, the FMA concluded the money deposited by OMF was made for businessrelated payments to thirdparty providers, not to safeguard against the risk of a shortfall arising.

FMA director of supervision James Greig said: ‘‘A derivatives issuer failing to handle client money appropriately is serious and we have previously signalled our concerns around this issue in our 2020 DI sector risk assessment report. We have little tolerance for firms not meeting their obligations in this area.’’

Although no OMF clients lost money as a result of this issue, the FMA considered investor money was at risk while the necessary separation processes were not in place, Mr Greig said.

‘‘The breaches warranted a public censure due to the significant period over which they occurred, as well as the value and number of transactions,’’ he said.

‘‘While we acknowledge that OMF selfreported these issues to us, managing client money in accordance with the regulations is a fundamental minimum requirement for any licensed derivatives firm. In these circumstances, the selfreporting of the issues is expected and does not prevent the FMA from taking action and using our regulatory tools to hold firms to account.’’

Jarden had engaged constructively with the FMA during the process and implemented changes to ensure this issue did not happen again, Mr Greig said. —

❛ The breaches warranted a public censure due to the significant period over which they occurred . . .