The Securities Commission is the gatekeeper of the capital market. Sections 40 and 41 of the Capital Market Act 2015 tell it when it may keep the gate shut. The grounds are discretionary: the Commission “may” refuse if one exists, and under section 37 it is never obliged to grant a licence. The same grounds reappear as reasons for revocation under section 48 and for disqualifying directors under section 51. See how to apply.
The grounds, grouped
| Group | Capital market licence (s 40(1)) | Representative’s licence (s 41(1)) |
|---|---|---|
| Defective application | (a) not made under s 36; (b) other breach of the Act or guidelines; (c) false, misleading or materially incomplete information | (a)–(c) identical |
| Insolvency | (d) being wound up; (e) unsatisfied judgment debt; (f) receiver appointed; (g) compromise with creditors in operation | (d) undischarged bankrupt; (e) unsatisfied judgment debt; (f) compromise with creditors |
| Convictions and past conduct of the applicant or its directors, chief executive, chief financial officer or senior managers | (h)(i) fraud, dishonesty or violence; (ii) securities offences here or abroad; (iii) prior action by the Commission under ss 443–445; (iv) breach of investor-protection laws; (v) deceitful or oppressive business practices; (vi) conduct casting doubt on competence and judgment; (vii) money-laundering investigation; (viii) undischarged bankrupt | (g)(i)–(vii) identical, applied to the individual |
| Qualifications | — | (h) educational or other qualification or experience not satisfactory |
| Fitness and standing | (i) may not act in clients’ best interests given reputation, character, financial integrity and reliability; (j) financial standing or manner of conducting business unsatisfactory; (k) record of past performance or expertise unsatisfactory | (i) and (j) equivalent |
| Future risk | (l) circumstances likely to lead to improper conduct or discredit; (m) will not carry on the activity “efficiently, honestly or fairly” | (k) and (l) equivalent |
| Public interest | (n) contrary to the interests of the public | (m) identical |
Objective grounds
Some grounds turn on provable facts. An applicant in liquidation, an unsatisfied judgment debt, a receiver in office, or a conviction for fraud leaves little room for argument. Section 40(1)(h) extends the conviction grounds to the applicant’s directors, chief executive, chief financial officer and senior managers, “whether within or outside Papua New Guinea”, so a foreign fund manager setting up in Port Moresby brings its overseas record with it. Ground (h)(iii) means a penalty or reprimand imposed by the Commission in an earlier matter counts against a later application. See administrative penalties.
Grounds requiring the Commission’s judgment
The Commission may refuse where it “has reason to believe” that the applicant or its officers “may not be able to act in the best interest of its clients having regard to their reputation, character, financial integrity and reliability”; where it “is not satisfied as to the financial standing of the applicant or the manner in which the applicant’s business is to be conducted”; or where it “has reason to believe” that the applicant or its officers “will not carry on the regulated activity efficiently, honestly or fairly”.
These grounds give the Commission wide latitude. “Efficiently, honestly or fairly” is a standard borrowed from other common-law securities regimes and looks at the whole of the applicant’s proposed operations. Ground (k), record of past performance or expertise, allows refusal of a start-up with no track record, although the Commission has in recent years licensed a landowner-owned company as trustee and fund manager of a new scheme, so inexperience is not an automatic bar. Ground (n), the public interest, is the broadest and overlaps with everything else.
Inquiry into past transactions: section 42
Section 42(1)(a) allows the Commission to inquire into any purchase or sale of securities, or trade in derivatives, by an applicant or its directors, chief executive, chief financial officer or senior managers “during any period of 12 months preceding the application”, to see whether “dishonest, unfair or unethical devices or trading practices” were used, whether or not they amount to an offence. For existing licensees the inquiry may reach back indefinitely (section 42(1)(b)). The person must supply the details by written notice within the time set, and failure, or false or incomplete information, exposes the application to rejection or an existing licence to revocation (section 42(3)).
The right to be heard
The Act is uneven here. Section 45(5) says the Commission “shall not refuse an application under Subsection (1), without giving the applicant an opportunity to be heard”, but section 45 deals only with applications to vary or transfer a licence. Sections 40 and 41 contain no equivalent words for an original application, although section 48(4) requires a hearing before revocation and section 52(10) before withdrawal of a registration. Whether natural justice under the Constitution nonetheless requires a hearing before an original refusal has not yet been decided under this Act.
Appeal
Section 56(1) gives “a person who is aggrieved by the decision of the Commission under this division” an appeal to the National Court “within 14 days after the person has been notified of the decision”. The Court may confirm the decision, set it aside, or refer the matter back to the Commission, and must take into account the interests of investors and the public (section 56(2), (4)). The Commission’s decision takes effect immediately unless the appellant obtains a restraining order. See appealing a licensing decision.
Ground (c), false or misleading information or a material omission, is the one most within the applicant’s control, and section 47 makes a knowingly false statement an offence punishable by up to K10,000,000 or ten years’ imprisonment. Disclose a director’s past bankruptcy or an overseas regulatory finding and argue why it should not matter; concealing it is both a ground for refusal and a crime.
Sources
- Capital Market Act 2015 — ss 37, 40, 41, 42, 45(5), 47, 48(4), 51, 52(10), 56, 443–445
- Constitution of the Independent State of Papua New Guinea
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.