A capital market licence is renewed yearly, but it can end sooner. Section 48 of the Capital Market Act 2015 sets out when the Securities Commission may take it away, suspend it or restrict it. The history of the Pacific Balance Fund’s trustee shows these powers in use.
Automatic revocation
Section 48(1) deems a licence revoked, without any decision by the Commission, if a corporate holder “is wound up or otherwise dissolved”, here or abroad, or if a representative dies. A licence also expires twelve months after issue unless renewed (section 44).
Grounds for revocation by the Commission
The Commission may revoke a capital market licence if “there exists a ground on which the Commission may refuse an application under Section 40(1)”; the holder “fails or ceases to carry on the business in all or any of the regulated activities for which it was licensed for a consecutive period of three months”; the holder “contravenes any condition or restriction in respect of its licence or any direction issued to it by the Commission”; the holder contravenes binding rules of the stock exchange, clearing house or central depository; or the holder fails to pay any fee under section 39.
The first ground imports the whole of section 40(1): insolvency, convictions, improper business practices, doubts about financial standing or competence, and the public interest. See refusal grounds. For representatives, section 48(2)(b) lists equivalent grounds, though it cross-refers to section 40(1) where section 41(1) would be expected.
Suspension and restriction
Under section 48(3) the Commission may, where a revocation ground exists, “suspend a licence for a specific period instead of revoking it”, and may extend or revoke the suspension at any time. Under section 48(6) it may “impose any restriction on the activities of a licensed person”, permanently or for a set period. Section 48(10) deems a person whose licence is revoked or suspended “not to be licensed” from that date.
The section 48(6) power was used against Melanesian Trustee Services Ltd (MTSL), trustee of the Pacific Balance Fund. From 2018 the Commission’s Chairman directed the trustee’s bank to restrict the accounts of MTSL and the Fund. In ANZ Banking Group (PNG) Ltd v Melanesian Trustee Services Ltd [2019] PGNC 100, Dingake J refused MTSL orders letting it operate the accounts because it had not proved it still held a current licence under section 44. See the ANZ case.
The right to be heard
Section 48(4) provides that the Commission “shall not revoke or suspend a licence … without giving the licensed person an opportunity to be heard”. Section 48(5) lists exceptions: a corporate holder being wound up, a receiver appointed over its property, or a conviction of the holder or its senior officers for fraud, dishonesty, violence or a securities offence; for a representative, bankruptcy or an equivalent conviction.
The 2023 litigation shows the hearing requirement at work. By letter of 9 August 2023 the Commission revoked MTSL’s licence under section 48 and appointed Weathermen Capital Advisors Ltd as interim trustee under section 202. On 18 August 2023 the National Court allowed MTSL’s appeal, set the revocation aside, restored the licence and gave MTSL 30 days to respond to the Commission’s letter. MTSL responded; on 25 September 2023 the Commission revoked the licence again under section 48(2)(a)(i) and (iii), gazetted the revocation and reappointed the interim trustee. MTSL’s second appeal is reported in Melanesian Trustee Services Ltd v Securities Commission [2023] PGNC 356. See the 2023 case and interim trustees.
What revocation does and does not do
Section 49(1) preserves existing dealings: revocation, suspension or restriction does not “avoid or affect any agreement, transaction or arrangement” entered into before it. A unit holder’s units and the trust deed survive the trustee’s loss of licence. Under section 49(2) the Commission may permit a revoked holder to carry on business “for the purpose of closing down”, or a suspended holder to carry on “only essential business operations for the protection of interests of clients”, subject to conditions.
Section 48(7) requires the holder to notify all its representatives in writing immediately, and section 48(8) ends their licences for that firm. Section 48(11) makes it an offence, punishable by up to K10,000,000 or ten years’ imprisonment or both, to carry on a regulated activity after revocation, during suspension or in breach of a restriction, or to fail to notify representatives.
Self-reporting and surrender
Section 50(1) obliges a licensed person, “immediately after the happening of an event” that is a revocation ground, to give the Commission written notice of it. It is a defence to prove the holder was unaware of the event, and contravention is an offence. A trustee whose director is convicted must therefore report itself.
A holder may instead surrender its licence under section 57 by sending it to the Commission with written notice. The surrender does not take effect until the Commission is satisfied “that adequate arrangements have been made to meet all the liabilities and obligations” outstanding (section 57(2)). A trustee cannot walk away from a scheme by handing in its licence; it must first arrange for a successor. See changing the trustee.
Under section 56(3) a revocation takes effect immediately upon issue, and an appeal does not suspend it unless the appellant obtains a restraining order first. In the 2023 case the Court held that a general stay was not available under section 56(3). A licence holder facing revocation must act within days. See appealing a licensing decision.
Sources
- Capital Market Act 2015 — ss 39, 40(1), 42(3), 44, 48, 49, 50, 53(2), 56, 57, 202
- Australia and New Zealand Banking Group (PNG) Ltd v Melanesian Trustee Services Ltd [2019] PGNC 100; N7805
- Melanesian Trustee Services Ltd as Trustee for Pacific Balance Fund v Securities Commission of Papua New Guinea [2023] PGNC 356; N10524
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.