Building capacity: The market regulator is expected to benefit from new initiatives

While Papua New Guinea’s capital markets have grown dramatically in recent years, the Securities Commission of PNG (SCPNG) has not developed at the same rate. The regulator is widely viewed among market participants and related firms as inadequate, underfunded and unable to effectively supervise the Port Moresby Stock Exchange (POMSoX). According to a report released in May 2011 by the Asian Development Bank (ADB), the SCPNG is in need of a structural review. The regulator is expected to benefit from a series of development and reform projects in the coming years, with the longterm goal of addressing these issues and boosting capacity throughout the market.

A CHALLENGING SITUATION: The SCPNG was established in March 1998 with a mandate to enforce the recently introduced Securities Act of 1997, which was developed with assistance from representatives of the Australian Securities Exchange (ASX) and was largely based on Australian legislation. Since then, however, the act has become out of date.

The SCPNG’s role as a market regulator is also weak due to a lack of support. Together with the fact that it is housed within an entity responsible for promoting and facilitating investment, this has made its regulatory influence unclear; the IPA also serves as administrative home to the Companies Office and Intellectual Property Office, and what little resources it has is spread thinly across those different yet important functions. Initially SCPNG’s inaugural chairman was also the Companies Registrar. Unfortunately, this housing arrangement has continued ever since. The government only started funding SCPNG within the past three years, although this funding was incorporated as part of the IPA budget. The SCPNG is now in the process of working together with important stakeholders to implement the cabinet’s decision to prepare and set the commission adrift as a standalone entity.

EXTERNAL SUPPORT: The SCPNG and the government are now weighing their options for boosting capacity at the regulator. The commission could take advantage of a longstanding relationship with the Australian Securities and Investments Commission (ASIC) to request additional training and funding in an effort to improve the regulator’s capabilities. Under a memorandum of understanding (MoU) the two organisations signed in 1999, they have agreed to offer each other “mutual assistance” to “facilitate the performance of the authorities’ functions”. In practice, the MoU has been used primarily to enable information-sharing between ASIC and the SCPNG, but it might eventually serve as the basis for a more significant partnership.

The SCPNG could also potentially request assistance from the International Organisation of Securities Commissions (IOSCO), of which it has been a member since 1998. The IOSCO is an international industry association based in Spain that regularly offers training workshops and other education programmes to member countries to support market growth.

REVAMP: The International Finance Corporation (IFC), the private sector development arm of the World Bank, has extended technical assistance to help address the SCPNG’s capacity issues. This will complement the cabinet’s decision that SCPNG become a stand-alone entity. An IFC scoping mission in early 2012 looked at how assistance can be structured within the current technical assistance agreement between the IPA and IFC.

Once this is fully set up, the new commission will be able to establish itself as a separate regulatory organisation like its sister institutions overseas, such as ASIC, the Financial Markets Authority of New Zealand, and others in the Asia-Pacific Region.

While the government is still in the early stages of revamping the regulator, as of May 2011 the new commission commenced the long process of drafting a new Securities Act, with the assistance of a New Zealandbased consultant. The law is expected to address a number of potentially problematic issues in the existing Securities Act and will reflect current international best practices – both being changes that bode well for future capital markets development in the country.