NEW ZEALAND Law and Practice Contributed by: James Cochrane, Andrew Comer, Carlo Wan and Graeme Crombie, Lane Neave
If a DeFi arrangement offers financial products to per- sons in New Zealand, it would either need to ensure that the persons receiving those products were whole- sale investors, or apply to make an offer to retail inves- tors. Financial Services Where DeFi services amount to a “financial service”, the FSP Act requires registration on the FSPR and, if services are provided to retail clients, membership of an approved dispute resolution scheme. The AML/ CFT Act imposes customer due diligence, monitor- ing and reporting obligations on “reporting entities”, which include many crypto-asset service models. In practice, a decentralised exchange, lending proto- col or other DeFi application might be characterised (depending on its features and fee flows) as offering the services of (among others): • changing foreign currency; • issuing or managing means of payment; • keeping or administering money or assets for oth- ers; • operating a prescribed intermediary service (such as P2P or crowdfunding); • dealing in or operating a market for financial prod- ucts; or • providing derivatives or managed investment prod- ucts. If the platform entity (eg, an entity that maintains a website/interface, curates tokens, or earns protocol or trading fees) is captured, it bears the obligations. Where there is no captured intermediary, obligations may fall on participants who themselves perform regu- lated activities (eg, issuing derivatives or operating a scheme) under the various acts and regulations which make up New Zealand’s financial markets and finan- cial services regime. Utilisation by CeFi Firms in Providing Products and Services There are no specific restrictions on the utilisation of DeFi in providing products and services in New Zea- land.
As discussed previously, CeFi firms remain under ordi- nary financial regulations when utilising DeFi in the provision of products and services. The FMA con- firms that assisting with exchanges, providing stor- age, facilitating transactions, providing investment opportunities or providing administrative services, will be considered financial services. As a result, anyone offering such services may need to be licensed under the FMC Act and registered under the FSP Act, along- side all general requirements for FSPs, such as AML/ CFT compliance. 5.2 DeFi Structures New Zealand does not recognise decentalised auton- omous organisations (DAOs) as a distinct legal form. DeFi projects must either operate through an exist- ing legal entity (eg, a company or offshore vehicle) or accept associated legal uncertainty and potential personal liability. There is no bespoke DeFi regime; regulatory treatment depends on the activities undertaken (eg, financial services) and target investors, not the use of decen- tralised or DAO structures. Set-up requirements broadly mirror those for financial service providers and typically include: • defining the service and financial product perim- eter; • determining whether services are provided in or into New Zealand and to retail or wholesale clients; • obtaining any required licences and FSP registra- tion; and • joining a dispute resolution scheme where retail clients are served. There are no DeFi-specific capital or substance requirements. Instead, any applicable FMC Act licens- ing conditions (eg, governance, systems and controls) apply. 5.3 Liability Accountability and liability track the underlying regime. If a person or entity provides a regulated financial ser- vice, the FMC Act’s civil and criminal liability provi- sions and FMA enforcement powers apply (includ- ing injunctions, civil pecuniary penalties, and stop
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