20 Oct 2022

FMA issues warnings to property investment firms

10:44 am on 20 October 2022
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The FMA said the biggest findings related to the use, confirmation and acceptance of eligible investor certificates. Photo: 123RF

The Financial Markets Authority (FMA) has issued formal warnings to seven wholesale property investment firms for alleged non-compliant practices.

The authority carried out a review of wholesale investments into property-related offers after an increase in complaints about how they were being promoted, and whether appropriate investors were being targeted and accepted.

Warnings have been issued to the following entities: Black Robin Equity and Westwood Terraces BRE, Du Val Capital Partners and Du Val Built-to-Rent Group, E+O Property Syndication, Jasper NZ Investments, Provincia Property Fund, Williams Corporation Capital Partnership Group and Wolfbrook Capital.

The FMA said the biggest findings related to the use, confirmation and acceptance of eligible investor certificates.

Eligible investor certification involves investors certifying they have sufficient investment experience to asses the merits of a transaction, including value and risk.

The law requires the certificate to state the grounds for the certification, and the FMA said the stated grounds must be related to the matters certified.

In the review it found some certificates were not confirmed by financial advisers, accountants or lawyers, which was a requirement.

It said other certificates were confirmed and accepted by offerors, with no grounds or the grounds were not related to what was certified.

Insufficient grounds included the sale of a farm, owning a term deposit or KiwiSaver, having a rental property portfolio, making substantial profits from selling houses and "experience in investment".

The authority also found several practices in the market which it said may increase the risk that an investor may be misled.

The included offers promoted through a broad range of advertising platforms, including through social media, instead of targeting experienced investors.

"The wholesale investor exclusion is intended to allow offerors to make offers to expert investors without having to provide the disclosure designed to inform and protect non-expert investors," FMA acting director of capital markets Paul Gregory said

"However, our review has found practices in the market which have allowed this exclusion to extend to people with little or no investment experience, some citing KiwiSaver or term deposits as grounds for supporting their expertise," he said.

Alongside the warnings, the FMA also published a report on its findings, setting out expectations for the industry.

"The industry should consider how our findings, and the warnings arising from them, could help improve how they promote offers and target and accept investors," Gregory said.