Before the Capital Market Act 2015, stockbrokers, investment advisers and unit trust trustees were licensed under the Securities Act 1997. The 2015 Act replaced those separate licences with a single “capital market licence” that names the regulated activities the holder may carry on. This article explains who must have one.
The basic rule in section 34
“A person shall not, whether as a principal or agent, carry on a business in a regulated activity or hold himself out as carrying on such business unless he is the holder of a capital market licence or is a registered person.”
Three elements matter. First, the activity must be a regulated activity, which section 2 defines by reference to Part I of Schedule 2. Second, the person must carry on a business in it, or hold themselves out as doing so. A one-off sale of your own shares is not a business; advertising yourself as a “licensed investment adviser” when you are not is holding out. Third, the rule applies whether the person acts as principal or as agent. See what the regulated activities are.
Who is caught in practice
| Business | Regulated activity |
|---|---|
| Stockbroker executing trades on PNGX for clients | Dealing in securities |
| Fund manager running a portfolio for a superannuation fund or a church | Fund management |
| Trustee operating a unit trust or managed investment scheme | Fund management and dealing in securities; also section 189 approval |
| Adviser recommending which shares or funds to buy | Investment advice |
| Financial planner preparing a retirement plan for a Port Moresby retiree | Financial planning |
| Firm advising a company on a prospectus or listing | Advising on corporate finance |
| Broker in futures or options contracts | Trading in derivatives |
The trustee of a unit trust is the clearest example for this series. Section 184 forbids anyone to establish or operate a unit trust or managed investment scheme unless they are a licensed trustee, and section 189 makes the licensed trustee the scheme’s “principal responsible entity”. A landowner company pooling royalties into a fund for its members cannot simply appoint a director as trustee; the trustee must be a corporation holding a licence covering the activities it will perform. See who can be the trustee.
Registered persons
Section 34(1) also allows a “registered person” to carry on a regulated activity. Section 52 and Schedule 4 reserve this route mainly for banks and financial institutions licensed under the Banks and Financial Institutions Act 2000, which are already supervised by the Bank of Papua New Guinea. A licensed bank may, for example, arrange the sale of interests in unit trust schemes as agent, or deal in government bonds, by being registered rather than licensed. The registration still comes from the Commission, which may impose conditions. See exemptions and registered persons.
Specified persons who need no licence
Section 34(2) exempts the “specified persons” listed in Schedule 3. The common thread is that the regulated activity is solely incidental to something else: a lawyer or accountant whose corporate finance advice is incidental to their practice, a newspaper publishing investment commentary without commission, a person dealing in securities for their own account through a licensed dealer, or a liquidator selling a company’s shareholdings. Section 34(3) lets the Commission impose conditions on specified persons, except licensed insurers.
Penalties and related offences
Carrying on a regulated business without a licence or registration is an offence under section 34(4), with a maximum fine of K10,000,000 or ten years’ imprisonment, or both. Several neighbouring provisions reinforce it:
- Representatives. An individual who acts as a representative in a regulated activity without a capital market representative’s licence commits an offence under section 35, with a maximum fine of K5,000,000 or five years’ imprisonment, or both. See representatives’ licences.
- Misuse of titles. Section 451(3) forbids anyone who is not a licence holder from using any name, title or description “implying or tending to create the belief” that they are licensed to carry on a regulated activity. No separate penalty is stated, so the general penalty in section 461 applies: up to K10,000,000 or ten years, or both. The subsection refers to regulated activities “as specified in Schedule 1”, although they are in fact listed in Schedule 2; this appears to be a drafting slip.
- Acting after revocation. Under section 48(11), carrying on a regulated activity after a licence has been revoked or has ceased, while it is suspended, or in breach of a restriction, is an offence carrying the same K10,000,000 or ten-year maximum. Section 48(10) deems a person whose licence is revoked or suspended not to be licensed from the date the revocation or suspension takes effect.
Section 55 requires the Commission to publish, at least once a year, a list of the names and addresses of all capital market licence holders, and section 53 gives the public a right to inspect the register of licence holders on payment of the prescribed fee. A promoter who cannot point to a current licence or registration is operating unlawfully, and anything they sell you is at risk. See how to spot an unlicensed scheme.
Licences carried over from the 1997 Act
Trustees and dealers approved under the repealed 1997 Act did not start again in 2017. Section 121 of the Securities Commission Act 2015 deems approvals given under the repealed Act to continue until amended or revoked under the new law. When the Commission revoked Melanesian Trustee Services Ltd’s licence in 2023, its letter described the approvals as “deemed to be a Capital Market License” under that provision. Deemed licences remain subject to renewal under section 44 and revocation under section 48. See revocation and suspension.
Sources
- Capital Market Act 2015 — ss 2(1) (“regulated activity”, “capital market licence”, “registered person”), 34, 35, 44, 48(10)–(11), 52, 53, 55, 184, 189, 451(3), 461; Schedules 2, 3 and 4
- Securities Commission Act 2015 — s 121 (transitional)
- Securities Act 1997 (repealed)
- Banks and Financial Institutions 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.