The licensing system in Part III of the Capital Market Act 2015 turns on one defined term. Section 2 says a “regulated activity” means “any of the types of regulated activities specified in Part I of Schedule 2”, and Part II of that Schedule defines each one. A business that falls within a definition needs a licence under section 34; a business that falls outside all six does not. See who needs a licence.
The six activities at a glance
| Activity | Core of the definition | Typical business |
|---|---|---|
| Dealing in securities | Buying, selling, subscribing for or underwriting securities, or inducing others to, as principal or agent | Stockbroker; underwriter; trustee buying shares for a unit trust |
| Trading in derivatives | Entering into, closing out or exercising derivatives, or soliciting orders for them | Futures or options broker |
| Fund management | Managing a portfolio of securities or derivatives for another person | Fund manager of a unit trust or super fund mandate |
| Advising on corporate finance | Advising on compliance with Parts IV–VI, fund raising, listing rules and restructurings | Corporate adviser on a prospectus or takeover |
| Investment advice | Advising others about securities or derivatives, or publishing analyses or reports | Investment adviser; research house |
| Financial planning | Analysing a person’s finances and providing a plan to meet their needs | Financial planner |
Dealing in securities
“Dealing in securities” means, whether as principal or agent, “acquiring, disposing of, subscribing for or underwriting securities”, or making or offering to make, or inducing any person to enter into, an agreement to do so, or an agreement (other than a derivative) “the purpose or avowed purpose of which is to secure a profit” from the yield of securities or fluctuations in their value.
“Securities” is itself widely defined in section 2 and includes shares, debentures, units in a unit trust scheme and interests in a managed investment scheme. The definition reaches both the broker who executes a client’s order and the person who “induces” the client to trade. Because it covers acting as principal, a company that trades its own portfolio as a business is dealing, although Schedule 3 exempts anyone dealing for their own account through a licensed dealer. See what counts as a security.
Trading in derivatives
Paragraph (2) covers, as principal or agent, making or offering agreements, inducing persons, or soliciting or accepting orders for entering into or taking an assignment of derivatives, closing them out, or exercising or allowing to lapse an option under them. A firm offering foreign-exchange or commodity contracts to the public would need to consider it. The segregated-account rules for derivatives clients in sections 93 to 96 attach to this licence category.
Fund management
“Fund management” means “undertaking on behalf of any other person or persons, whether on a discretionary authority granted by such person or persons or otherwise, the management of a portfolio of securities or derivatives”.
This is the activity at the heart of the unit trust series. A trustee that selects and manages a scheme’s investments is managing a portfolio on behalf of the unit holders; so is a separate fund manager appointed by the trustee under section 190. The definition does not require a discretionary mandate, so a manager who merely implements a client’s instructions is still caught. An external manager running part of a superannuation fund’s portfolio under a mandate needs this licence; the super fund itself is regulated under the Superannuation (General Provisions) Act 2000. Section 46 requires a K50,000 deposit or K250,000 insurance before a dealing or fund management licence is granted. See trustee versus fund manager.
Advising on corporate finance
Paragraph (4) defines this as giving advice about compliance with Parts IV, V and VI of the Act (issues of securities, unit trusts and takeovers), the regulations and guidelines under them, “the raising of funds by any corporation”, compliance with stock exchange listing requirements on fund raising or related-party transactions, and the arrangement or restructuring of a listed corporation’s assets or liabilities. Lawyers and accountants whose corporate finance advice is “solely incidental” to their practice are exempt under Schedule 3; a specialist advisory firm is not.
Investment advice
Paragraph (5) covers “carrying on a business of advising others concerning securities or derivatives contracts”, or as part of a business issuing or promulgating “analyses or reports” about them. Recommending that a client buy units in a particular fund is investment advice. Publishing a weekly share-tipping newsletter for subscribers is also investment advice unless the newspaper or information-service exemptions in Schedule 3 apply. Section 68 requires every licensed person’s recommendation to have a reasonable basis. See conduct rules for advisers.
Financial planning
Paragraph (6) defines financial planning as “analysing the financial circumstances of another person and providing a plan to meet that other person’s financial needs and objectives, including any investment plan in securities, whether or not a fee is charged”. The words “whether or not a fee is charged” matter: a bank officer who prepares a personal financial plan as a free add-on is still financial planning, though the bank may be a registered person.
A single business often carries on several activities. A unit trust trustee that chooses investments (fund management), buys and sells them (dealing in securities) and tells prospective investors which of its funds suits them (investment advice) needs a licence specifying all three. Section 37(2)(a) lets the Commission “specify and describe the regulated activity to which the licence is granted”, and section 45(1)(a) allows activities to be added or removed later. Carrying on an activity that is not on the licence is a breach of its conditions under section 37(3).
Sources
- Capital Market Act 2015 — ss 2(1) (“regulated activity”, “securities”), 34, 37, 45, 46, 68, 93–96, 190; Schedule 2 Parts I and II; Schedule 3
- Superannuation (General Provisions) Act 2000
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.