Essential legal tips for NZ fintech startups
FinTechs starting up on a limited budget need to be business-focused and agile – but it is also important to recognise that paying early attention to legal and regulatory matters can set you up for future success.
In this article, we highlight the key practical legal tips to guide fintechs embarking on their journey.*
Choosing your business structure and branding
Whilst other business structures are available, it is generally recommended for fintechs to be set up as limited liability companies. One of the most significant benefits of this is limiting the liability of shareholders.
Incorporating a company is a cheap and fast process that you can easily complete online via New Zealand Registrar of Companies. Research the availability of your preferred company name, and reserve the company name first. Remember to also check for trademarks, website address and/or Facebook page and register these as necessary (don’t forget to check for, and if necessary, register, similar names). The New Zealand Intellectual Property Office is a good place to start. Income tax, GST and employer registration for tax purposes can be applied for at the same time as company incorporation.
There are ongoing record keeping, filing, reporting and other obligations in operating a company and specific duties applying to directors – make sure you understand these.
Documenting the legal relationship between founders
It is important to consider how to structure the shareholding of the company. If there is more than one founder involved, having a clear agreement between founders is usually recommended. As part of this, consider what rights and powers should each founder have to determine the direction of the company or to enjoy the profits. Dealing with these issues when the business is more established or when relationships have broken down is usually much harder than considering the ground rules at the outset.
Navigating the financial regulatory landscape
A critical aspect of developing fintech products involves testing them against the financial regulatory framework. A small change to how the product operates may significantly change the level of compliance overhead required in offering the product. It is beneficial to understand this up front and early on as this may affect the product design.
At a very high level, some of the applicable laws might be Anti-Money Laundering and Countering Financing of Terrorism Act 2009, Financial Markets Conduct Act 2013, and the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
Considering privacy/data protection and cybersecurity
If you handle sensitive financial, commercial, and personal information, it is important to implement robust data management and cybersecurity measures into the design of products.
The obligations to protect customer information arise on several fronts, including compliance with the Privacy Act 2020, licence conditions, contractual requirements to customers, a duty of care under tort (negligence) law – or simply for reputation management and preservation of goodwill in your business.
Understanding your obligations as an employer
As an employer, you are under a range of obligations to provide robust protections for your employees. The Employment Relations Act 2000 sets out the right for an employee to bring a personal grievance for unjustifiable dismissal. One remedy they can seek is reinstatement, so make sure to follow a fair process if you consider dismissing any employee.
Commercial agreements with partners and other service providers
If you are collaborating with financial institutions, technology providers and other third parties, make sure that there are well-drafted contracts that clearly outline responsibilities, timeframes, costs, data-transfer arrangements, liabilities and risk apportionment, and the dispute resolution mechanisms of the collaborations.
Protecting intellectual property
Fintechs often rely on innovative ideas, branding, technology, software, algorithms, processes, and databases to offer their services. Protecting confidential information and intellectual property rights (IP) through patents, trademarks, copyright protection and contractual arrangements is crucial to preventing unauthorised use of its innovations and maintaining value in the company.
It is important to think about what arrangements might be necessary from the very beginning, and make sure that you act at the right time to avoid losing the chance to take advantage of those protections.
Dealing with competitors and customers
Dealing with competitors, and dealing with customers or potential customers, is regulated largely by the Commerce Act 1986, the Fair Trading Act 1986, and the Consumer Guarantees Act 1993. There are rules about spam marketing in the Unsolicited Electronic Messages Act 2007.
At a very high level, these laws seek to encourage competition for the benefit of customers and to protect customers, especially individual consumers, from deceptive, misleading or otherwise unfair (or irritating) business practices. Make sure you understand what is good practice.
Who can advise me?
At MinterEllisonRuddWatts we have lawyers who help clients navigate the issues raised above, and the many adjacent issues that can arise with running a business. If you have any questions, please contact one of our experts. Please get in touch to see if we can assist.
*Note that the tips outlined in this article are not an exhaustive or detailed list of the issues that may be relevant to your business. They do not constitute legal advice and may go out of date. If you are a fintech start up, we recommend you seek legal or other professional advice appropriate to your own circumstances. But we hope these tips will point you in the right direction.
by Jeremy Muir, Partner, MinterEllisonRuddWatts
Looking for more insights from global thought leaders? Join us at the FinTechNZ Hui Taumata on 27 February in Auckland.