INVESTMENT BUSINESS

Statement of Principles, Guidance Notes and Codes of Conduct

The Statement of Principles (Principles) is made pursuant to section 9 of the Investment Business Act 2003 (Act). The Principles are relevant to the Authority’s decision on whether or not to licence or register an investment provider and provide guidance on the Authority’s approach in:

• Interpreting the minimum licensing and registration criteria as defined in the Second Schedule of the Act and the grounds for revocation specified in section 21;
• Exercising its power to grant, revoke or restrict a licence or registration; and
• Exercising its powers to obtain information and reports and to require the production of documents.

The Principles are of general application and seek to take account of the wide diversity of investment providers that may be licensed or registered under the Act. The Principles should be read in conjunction with the Investment Business Act 2003 Code of General Business Conduct and Practice (Code), which is issued under section 10 of the Act.

The Code sets out specific standards for the conduct and practice of business by investment providers. The objective of the Code is to provide guidance to investment providers as to the following:

• Integrity and fair dealing standards required under the Act concerning the conduct of investment business;
• Skill, care and diligence required in offering any services that they provide or indicate a willingness to provide; and
• The standards required in other areas under the Act, as well as the best practice in the industry.

The Act provides that every investment provider shall, in the conduct of its business, have regard to any code of conduct the Authority issues. It further provides that the Authority shall consider a failure to comply with the provisions of such a code of conduct in determining whether an investment provider’s business is being conducted prudently as required by the minimum criteria for licensing and registration.​

The Investment Business (Net Assets, Capital and Liquidity) Rules 2022 (Rules) prescribe certain minimum levels of net assets, which must be maintained on an ongoing basis, having regard to the risks inherent in the business:

• When an investment provider carries on investment activities as principal, the minimum net asset level is $250,000;
• When an investment provider carries on investment activities as an agent, the minimum net asset level is $100,000; and
• When the investment provider carries on investment activities other than as principal or agent, the minimum net asset level is $12,000.

Nevertheless, the Rules also illustrate the circumstances in which the Authority may review the adequacy of the stipulated minimum level and substitute a higher minimum net asset threshold, including the possible application of a market risk-related capital add-on.

The Rules also define those assets that the Authority accepts as liquid and apply a standard requirement for liquid assets to be at least equivalent to the total of three months’ expenditure for investment providers that act as principal or agent.

If an investment provider acts as neither principal nor agent, then at least one month’s expenditure must be maintained in the form of liquid assets