How Is the Securities Commission of Papua New Guinea Funded?

A regulator that depends entirely on the annual budget can be starved into silence. Part IV of the Securities Commission Act 2015 gives the Securities Commission a mixed funding model, part appropriation and part self-funding from the market it regulates.

The Fund and what goes into it

Part VIII of the Public Finances (Management) Act 1995 applies to the Commission, with exceptions (section 43(4)). Several provisions of the Capital Market Act 2015 feed the Fund too. Yearly licence fees paid by every licensed person, and late payment fees, are paid into the Commission’s Fund (section 39(3), which refers to “Section 38” of the Securities Commission Act, an apparent drafting error for section 43). Sums accepted by the Chairman to compound an offence under the Capital Market Act go into the Fund (section 462(3)); the parallel compounding power in section 105 of the Securities Commission Act was repealed in 2023. And where the Commission recovers money in a civil action for market misconduct and cannot practicably distribute it to the investors harmed, it may retain the balance to defray the cost of regulating the market or of investor education (sections 324(5), 443(9), 445(8) and 447(5)).

The transaction levy

Section 44 is the Commission’s most distinctive income source. On every purchase and sale of securities recorded on a stock exchange or derivatives exchange, and on the trading of an open-ended unit trust or managed investment scheme, the purchaser and the seller are each liable to pay the Commission a levy at a rate fixed by gazetted order as a percentage of the consideration. Different rates may be set for different classes of securities. The stock exchange, the trustee or manager of the scheme, and the trade repository operator must collect the levy and account for it to the Commission (section 44(2)), and unpaid levy is recoverable as a civil debt (section 44(3)). For a unit holder, the practical point is that a small percentage of each application for or redemption of units in an open-ended scheme may be a Commission levy. The Act does not state the rate; check the current Gazette order or ask the Commission.

What the Fund may be spent on

Section 46 lists the permitted expenditure: legal and other fees and costs, staff remuneration including loans, superannuation and gratuities, other expenses properly incurred in performing the Commission’s functions, equipment, land and buildings, repayment of borrowings with interest, and generally the cost of giving effect to the Act. Section 45 imposes a duty of conservation: the Commission must manage its affairs so that total revenue is sufficient to meet all sums properly chargeable to its revenue account, including depreciation and interest, “taking one year with another”. Section 50 lets it borrow, with the Minister’s approval of the rate, period and terms, and section 51 lets it invest money not immediately needed “in such manner as the Commission deems fit”. Section 52 requires the Commission to keep trust accounts for money it receives in the course of its functions, and entitles it to a 10 per cent commission when funds held in trust are paid out to the beneficiaries. Section 53 exempts the Commission’s income from income tax.

Accounts, audit and reporting

The financial year runs from 1 January to 31 December (section 47). Within three months of its end the Commission must prepare a report on its activities and send it to the Minister, who tables it in Parliament (section 48; the amended Part II repeats the end-of-March deadline in section 26). The Commission must keep proper accounts, prepare an annual statement of accounts with a balance sheet and income and expenditure account, have it audited by the Auditor-General and send the certified statement and audit report to the Minister for tabling (section 49). A unit holder, journalist or MP who wants to know how much levy the market paid or whether the accounts were qualified should look for these tabled documents.

The Capital Market Development Fund

Part XIV of the Capital Market Act (sections 428 to 442) creates a second, separate fund. The Capital Market Development Fund is administered by its own Board as trustee, chaired by the Chairman of the Commission and including a stock exchange representative, four members with finance, business or legal experience and two University of Papua New Guinea representatives, all appointed by the Minister (section 431). Its assets are a share of the trading levy, a percentage of capital market licence application fees, parliamentary grants, donations, investment income and the undistributed restitution and recoveries mentioned above (section 429). Its objects are promoting an efficient and internationally competitive market, developing skills, encouraging self-regulation by professional bodies and funding research (section 430). The Board must conserve the fund, audit its accounts and report to the Commission (sections 437 to 439). The Minister may give general directions but may not direct how the money is disbursed (section 440), and may dissolve the fund if it becomes too small to meet its objects (section 441).