Who Can Be the Trustee of a Unit Trust in Papua New Guinea?

Everything in a unit trust depends on the trustee. It holds the investors’ money, invests it and answers to the Securities Commission. The Capital Market Act 2015 therefore restricts who may take the job.

Three requirements

Section 184(1) makes it an offence to establish or operate a unit trust or managed investment scheme unless the operator is “a licensed trustee under this Act and appointed by the members or unit holders” and the scheme itself is approved and registered by the Commission. The penalty is a fine of up to K10,000,000 or ten years’ imprisonment, or both. Section 189 then says what a licensed trustee is.

So the trustee must be (1) a corporation, (2) the holder of a current capital market licence covering the scheme, and (3) chosen by the members. Section 199 adds that nobody may be “chosen or appointed as the trustee or interim trustee” unless it meets section 189. A church or landowner group pooling its savings cannot simply nominate one of its members as trustee; it must engage, or form and license, a company. See what a unit trust is.

Getting the capital market licence

Part III of the Act governs licensing. Section 34 prohibits carrying on a business in a “regulated activity” without a capital market licence, on pain of the same K10 million or ten-year penalty. Applications go to the Commission with a non-refundable fee (section 36), and the Commission may inquire into the “financial, criminal and professional background” of the applicant, its directors, managers and any controller holding 15 percent or more of the votes (section 36(2) and (7)). The licence is granted under section 37, may carry conditions (sections 37 and 38), and expires 12 months after issue unless the Commission specifies a later date (section 44). Renewal must be sought at least 30 days before expiry.

A licence for dealing in securities or fund management is not granted or renewed unless the applicant has lodged a deposit of at least K50,000 with the Commission or holds insurance against claims of at least K250,000 (section 46), and the Commission may set minimum financial requirements (section 43). See how to apply for a licence.

When the Commission may refuse

Section 40 lists the grounds on which a licence may be refused or not renewed: an applicant being wound up, with an unsatisfied judgment debt, in receivership or under a creditors’ compromise; an applicant or any director, chief executive or senior manager convicted of fraud or a securities offence, investigated for money laundering, or found to have engaged in “deceitful or oppressive or otherwise improper” business practices; and broader grounds where the Commission doubts the applicant’s financial standing, past performance or expertise, or believes it will not act “efficiently, honestly or fairly”. The same grounds support revocation (section 48). See refusal of a licence.

Fit and proper directors and chief executive

Section 51 looks behind the company. A person may be appointed a director of a licence holder only if he or she is a fit and proper person to whom none of the disqualifying grounds in section 41(1)(d), (e), (f), (g), (i), (j), (k) or (l) applies: no bankruptcy, no unsatisfied judgment, no fraud or securities conviction, no doubt about competence, reputation or financial integrity. The chief executive cannot be appointed without the Commission’s approval (section 51(2)). The holder must notify every director appointment, report anyone who ceases to be fit and proper, and remove them if the Commission directs (section 51(9)–(11)). See who can be a director of a licensed firm.

Trustees before and after 2015

Under the repealed Securities Act 1997, trustees were licensed under section 72 of that Act. Melanesian Trustee Services Ltd held such a licence as trustee of the Pacific Balance Fund, as National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845 records. When the Securities Commission Act 2015 repealed the 1997 Act, its section 121 deemed existing approvals to continue under the new law. That is why, when the Commission revoked the trustee’s licence in 2023, its letter described the approval as “deemed to be a Capital Market License” under section 121(1) and section 37 (see Melanesian Trustee Services Ltd v Securities Commission of Papua New Guinea [2023] PGNC 356; N10524). More recently the Commission licensed MRL Capital Ltd, a landowner-owned company, as trustee and fund manager of the new Lihirian Investment Fund.

Before investing, check the Commission’s register of licence holders (section 53), which anyone may inspect, and its annual published list (section 55). Holding out as a licensed trustee without a licence breaks section 451(3) as well as section 34. See spotting an unlicensed scheme.