Section 34(1) of the Capital Market Act 2015 requires anyone carrying on a business in a regulated activity to hold a capital market licence “or” be a registered person, and section 34(2) says the requirement “shall not apply to the persons or classes of persons as specified in Schedule 3”. This article explains both escape routes. See who needs a licence.
Specified persons: Schedule 3
Section 2 defines a “specified person” as a person or class of persons specified in Schedule 3. The Schedule contains twenty items. Almost every one uses the words “solely incidental”: the exemption is lost if the regulated activity becomes a business in its own right.
| Item | Who is exempt | Limit of the exemption |
|---|---|---|
| 1–2 | Lawyers in practice; accountants who are members of the institute under the Accountants Act 1996 | Corporate finance advice or financial planning solely incidental to the profession |
| 3 | Valuers under the Valuation Act 1967 | Valuations for corporate finance advice incidental to valuation practice |
| 4–5 | Newspaper proprietors and information services | Investment advice given only through the publication, to paying subscribers, with no commission, incidental to the publishing business |
| 6–8 | Corporations | Fund management, investment advice or corporate finance advice solely for related corporations |
| 9–10 | Anyone | Dealing in securities for their own account or a related corporation through a licensed dealer, or in unlisted securities |
| 11–13 | Own-account and non-resident derivatives traders; exchange affiliates; licensed derivatives traders delivering securities under a derivative | Trading on own account or incidental to a derivative |
| 14 | Public statutory corporations | Dealing in securities or fund management |
| 15–17 | Stock exchanges, derivatives exchanges, clearing houses | Dealing incidental to operating the market or clearing facility |
| 18–19 | Receivers, liquidators, court-appointed persons; trustees of compromises | Activity incidental to those duties |
| 20 | Insurers licensed under the Insurance Act 1995 | Fund management incidental to managing their insurance business |
How the exemptions work in practice
- A Port Moresby law firm that advises a client company on the prospectus requirements of Part IV is advising on corporate finance, but the advice is incidental to legal practice and item 1 applies. If the same firm set up a separate corporate advisory arm charging success fees on capital raisings, the exemption would be doubtful.
- A church that invests its surplus funds by instructing a licensed stockbroker is dealing in securities for its own account through a licence holder (item 9) and needs no licence. If it started managing investments for other congregations, it would be fund managing for others and would need one.
- A landowner company holding shares in its joint-venture partner deals for its own account. A company it sets up to manage a pooled fund for its members is operating a managed investment scheme and needs a licence and registration under Part V. See registration of schemes.
- A liquidator selling a failed company’s share portfolio is exempt under item 18; a liquidator who begins advising creditors on where to reinvest the proceeds is not.
Section 34(3) allows the Commission to impose “such terms and conditions as may be deemed appropriate on specified persons”, except licensed insurers. An exempt person may therefore still receive directions from the Commission.
Registered persons: Schedule 4 and section 52
Registered persons are different. They carry on regulated activities as a business, but through a lighter registration regime because another regulator already supervises them. Section 52(1) says a person is a registered person if specified in Schedule 4 and registered by the Commission under section 52(2) and registered with a body approved by the Commission. Section 52(11) names the Bank of Papua New Guinea as the “relevant authority”, which fixes the categories of fit and proper staff and may appoint authorised persons to check compliance.
Licensed banks and licensed finance companies may, as registered persons, deal in government and State-owned enterprise bonds, deal in unlisted corporate debentures, arrange the sale or purchase of customers’ securities through a licensed dealer, underwrite securities, and arrange or offer “for sale or purchase as agents for any person, any interest in unit trust schemes”. Licensed financial institutions may also give investment advice and act as portfolio managers.
Part II of Schedule 4 adds venture capital corporations, credit rating agencies and bond pricing agencies registered under the Commission’s guidelines. For this series the important item is the one about unit trusts: a bank that sells units in a registered scheme to its customers as agent acts as a registered person, but must still be registered and follow the Commission’s guidelines under section 52(5).
Conditions, conduct rules and withdrawal
Section 52(3) lets the Commission impose terms and conditions on registration and amend or revoke them by written notice. Section 52(6)(c) applies the key conduct rules in sections 67 (disclosure of interests), 68 (reasonable basis for recommendations), 70 (priority to client orders) and 74 (dealing as principal) to registered persons “with the necessary modifications”, requires the individuals who do the work to be fit and proper as determined by the Bank of Papua New Guinea, and requires a register of those individuals. Section 52(9) allows the Commission to withdraw a registration where necessary for investor protection, the public interest or an orderly market, or where a condition has not been complied with, but only after giving the registered person an opportunity to be heard (section 52(10)).
Schedule 4 lists banks and financial institutions licensed under the Banks and Financial Institutions Act 2000, plus the three Part II categories. A superannuation fund, a savings and loan society or an ordinary company cannot register under section 52; they must either fit within Schedule 3 or hold a full licence.
Sources
- Capital Market Act 2015 — ss 2(1) (“specified person”, “registered person”), 34(1)–(3), 52, 67, 68, 70, 74; Schedules 3 and 4
- Banks and Financial Institutions Act 2000
- Accountants Act 1996
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.