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Chinese consumers can turn to dispute resolution scheme for help

Financial Services Complaints Limited (FSCL) is reminding Chinese New Zealanders that the dispute resolution schemes can help if they fall victim to investment scams.

Following a media release from the Financial Markets Authority (FMA) which points out that a 2020 FMA survey found that one in five Chinese New Zealanders had been approached about a potential investment scam- the same as the overall population, FSCL has a recent complaint that highlights how sophisticated scams can lure Chinese investors.

FSCL, an independent dispute resolution scheme approved under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, provides a free service to consumers. Every financial service provider needs to belong to a dispute resolution scheme to operate in New Zealand, including investment providers.

“It is important for investors to check that companies offering investments are registered. Investors can check this on the Financial Service Providers Register,” explains FSCL Chief Executive Officer, Susan Taylor.

“Investors should also research the investment and company to satisfy themselves that the investment is legitimate, and to ensure they understand the nature of the investment and the risk involved. Investors may also want to obtain independent advice from a financial adviser.”

In the case investigated by FSCL, the Chinese complainant only realised she had inadvertently invested with a company that was not a registered financial provider when she needed to withdraw her investment early because her family needed financial assistance due to Covid- 19.

Anika* had held deposit- like investments with Company A for a year without any problems. She was always paid monthly interest and her capital was repaid at maturity. In March last year, she reinvested $100,000 but needed to withdraw her investment early.

Company A initially rejected her request. So, she sought legal advice. It was at this point she discovered Company A was not registered in New Zealand to provide investments to consumers.

In addition, Anika uncovered that another company (Company B) was handling her investment funds and paying her monthly interest and a third company (Company C) had been communicating with her about the investment when she asked for her capital to be returned.

Anika asked the three companies to immediately return her capital. Although Company A did eventually return her capital, they would not reimburse Anika’s legal costs of around $8,500.

Anika asked FSCL to investigate her complaint with Company B and C, who were both FSCL members. Both had declined to reimburse her legal costs too.

When FSCL began its investigation into Company C misleading Anika about her investment, Company C voluntarily deregistered from the Financial Service Providers Register and said they had closed their bank accounts.

Company B, who Anika believed had helped Company A to mislead her about the investment, considered themselves an innocent third party. However, Company B were not able to provide sufficient evidence to refute Anika’s claims. In addition to inconsistencies about their role in the investment scheme, initially saying they managed the investments, then saying they only provided foreign exchange services to Company A, Company B could not explain the nature of the assets they were managing for Company A, or why the company used a personal bank account to transfer Anika’s investment funds, rather than the company’s bank account.

Although FSCL concluded that Company B should pay a contribution towards Anika’s legal costs, they stopped communicating with FSCL about the complaint. Because they did not comply with the recommendation, their FSCL membership was terminated and they were deregistered from the Financial Service Providers Register, because they no longer belonged to an approved dispute resolution scheme.

Anika was disappointed she had not been paid compensation but was pleased we had found in her favour and was happy for FSCL to share her experience with others.

Ms Taylor reiterated FMA Director of Regulation Liam Mason’s message that they should not believe scammers when they warn that victims will get in trouble with New Zealand authorities if they report the crime.

“This is absolutely not correct. Dispute resolution schemes were set up as a consumer protection tool. Our role is to provide a free service for the consumer. Our processes are designed to be easy for consumers to use and they do not need to be legally represented. We understand that scammers know consumers do not want to lose face or cause a fuss. Our case managers do not judge complainants. We are there to help and support them through the process.”

In addition, FSCL has a translation service for Chinese consumers who do not speak English as a first language.

“Our goal is to make our service accessible to anyone living in New Zealand. We do not want language to be a barrier,” says Ms Taylor, adding that FSCL has a translation service in place which enables us to have interpreters available on demand for Mandarin speakers.

“If a consumer contacts us, they can let us know if they would like to communicate in their preferred language and we will arrange an interpreter. If any consumer is unsure whether we can help with a complaint, we encourage them to contact our early assistance team who will be able to advise them.”

*Name changed to protect complainant’s privacy.