The Capital Market Act 2015 licenses at two levels. The firm holds a capital market licence under section 34. The individuals who do the regulated work for the firm, such as the broker who takes a client’s order or the adviser who recommends a fund, hold a capital market representative’s licence under section 35. See who needs a capital market licence.
Who is a representative?
Section 2 defines a “representative” as a person, by whatever name called, “in the direct employment of, or acting for, or by arrangement with” a person who carries on a regulated business, who carries out that regulated activity for them, “other than work ordinarily performed by accountants, clerks or cashiers”. It does not matter whether or how the person is paid. The bookkeeper of a stockbroking firm is not a representative; the dealer who executes trades and the adviser who meets clients are.
“A person shall not act as a representative in respect of a regulated activity or hold himself out as doing so unless he is the holder of a capital market representative’s licence for that regulated activity or is a registered person with respect to that regulated activity.” Contravention carries a fine not exceeding K5,000,000 or imprisonment not exceeding five years, or both.
The licence is activity-specific: a representative licensed for investment advice may not deal in securities unless dealing is also on the licence.
A licence tied to a principal
A representative’s licence cannot exist on its own. Section 36(6)(a) requires the application to be “supported by a holder of a capital market licence or a person who has applied for a capital market licence for that regulated activity”. Section 37(2)(c) then lets the Commission relate the licence to the supporting firm and restrict it to that firm’s regulated activities. The section 53 register records, against each representative, the firm for which the licence was issued.
Section 36(6)(b) deems the licence revoked from the date on which the supporting firm withdraws its support in writing, withdraws its own application for a licence, or has that application refused. The three events are joined by “and” in the Act, which read literally would require all three to happen; the evident intention is that any one of them ends the representative’s licence, and that is how a cautious reader should treat it.
Grounds for refusing a representative’s licence
Section 41(1) lists the grounds on which the Commission may refuse to grant or renew a representative’s licence. Many mirror the grounds for firms in section 40: a defective application, false information, bankruptcy, an unsatisfied judgment debt, a conviction for fraud, dishonesty or violence or under securities laws, past administrative action by the Commission under sections 443 to 445, improper business practices, or a money-laundering investigation. Two grounds are specific to individuals:
- Section 41(1)(h): the Commission “is not satisfied as to the educational or other qualification or experience of the applicant having regard to the nature of the duties he is to perform”.
- Section 41(1)(i): the Commission has reason to believe the applicant may not be able to act in the best interests of the firm’s clients “having regard to his reputation, character, financial integrity and reliability”.
Section 36(2) authorises financial, criminal and professional background checks, and section 42 lets the Commission inquire into the applicant’s securities transactions in the preceding twelve months. See refusal grounds.
Changing firms
A representative who moves to another licensed firm does not apply afresh. Section 45(1)(b) allows the holder, on application, to “vary the name of the principal, on whose behalf he may act and the regulated activity to which the licence relates”. Under section 54(1)(b), a representative who ceases to act for the firm named on the licence and has not varied it must notify the Commission within 14 days.
The same route applies when the firm’s licence is revoked or suspended. Section 48(8) provides that the firm’s representatives “cease to be” holders of representatives’ licences for that firm, and section 48(9) permits them to apply under section 45(1)(b) to vary their licences to a new principal. Section 48(7) requires the firm to tell all its representatives in writing immediately; failing to do so is an offence under section 48(11) carrying up to K10,000,000 or ten years, or both.
When a scheme’s trustee loses its licence, as happened to the trustee of the Pacific Balance Fund in 2023, every adviser and dealer working under it loses the right to act for it at the same moment. Representatives should move quickly under section 45(1)(b) if the firm fails. Clients should check that the individual they deal with is licensed as well as the firm.
The firm answers for its representatives
Section 456(3) provides that where a representative of a capital market licence holder contravenes any provision of the Act, “such holder shall be deemed to have contravened such provision”. The representative also remains personally liable. The conduct rules in sections 65 to 75 apply to “licensed persons”, which section 2 defines to include representatives, and section 70 forbids a representative dealing for his own account ahead of a client’s order. See conduct rules.
Section 2 defines “capital market representative licence” as a licence “issued under Section 40”, but section 40 lists refusal grounds; licences are in fact applied for under section 36 and granted under section 37. Similarly, section 48(2)(b)(i) allows revocation of a representative’s licence where a ground in “Section 40(1)” exists, where section 41(1) would be expected. These appear to be drafting errors and do not change the substance.
Sources
- Capital Market Act 2015 — ss 2(1) (“representative”, “licensed person”, “capital market representative licence”), 35, 36(2), 36(6), 37(2)(c), 41, 42, 45(1)(b), 48(7)–(11), 53, 54, 65–75, 456
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.