Broker-dealer and investment advisor activities are mainly regulated in Panama by Law Decree No.1 of 1999, as amended (the “Securities Law”). 1 The Superintendency of the Securities Market of Panama (hereinafter, the “Superintendency”) is the government agency which holds primary responsibility for enforcing the Securities Law and regulating the securities industry, including the licensing and supervision of broker-dealers and investment advisors.
The Securities Law defines the parameters of which regulated activities require either a Broker-Dealer license or an Investment Advisory license in order to be carried out.2 A “broker-dealer” is defined as any person engaged in the business of purchasing and selling securities or financial instruments, either on behalf of others (e.g., through the offering, opening and management of investment accounts) and/or for its own account. 3 Licensed broker-dealers are allowed to operate as investment advisors without the need to procure a separate Investment Advisory license.
An “investment advisor” is any person who advises others on the price of securities and the risks of investments, trading securities or financial instruments, or who prepares or publishes studies and reports on this subject. Unlike licensed broker-dealers, investment advisors wishing to engage in broker-dealer activities must obtain a separate Broker-Dealer license. Another important distinction is that investment advisors may not offer or open investment accounts; however, they may administer custody accounts held by their clients with other licensed broker-dealers.
The Superintendency is responsible for issuing licenses to both broker-dealers and investment advisors. Regulation No. 2-2004 (for Investment Advisory licenses) and Regulation No. 2-2011 (for Broker-Dealer licenses) issued by the Superintendency outline the requirements for obtaining each type of license. Pertinent rules and regulations (including the Securities Law) are available on the Superintendency’s website (www.conaval.gob.pa) in Spanish. For reference purposes only, the following is a non-exhaustive sampling of the standard documentation requested of prospective applicants by the Superintendency:
- applicant’s Articles of Incorporation;
- government issued identifications of its directors and officers;
- curriculums of its directors and officers;
- banking or personal references for its directors and officers; and
- business plan for the first two years.
As part of the application process, prospective broker-dealers and investment advisors must establish that they possess sufficient technical, human resources, administrative, and financial capabilities, to (i) render the services permissible under their applicable license, and (ii) ensure that its directors, officers, and employees comply with the Securities Law and such other rules and regulations that the Superintendency may issue from time to time. In practice, this last requirement has translated into prospective applicants having to hire a full-time compliance officer as a means of meeting this burden of proof.
Every license holder is subject to “know your customer” and other due diligence requirements imposed by the Securities Law and the Superintendency. In addition, license holders have the duty to report suspicious transactions and/or activities to the Financial Analysis Unit for the Prevention of the Crimes of Capital Laundering. The Superintendency requires that licensed broker-dealers and investment advisors maintain a physical office in Panama.
License applications must be submitted in writing to the Superintendency by a duly authorized attorney or law firm. The length of time required to complete the application process varies on a case by case basis; generally taking between three (3) and six (6) months to complete (subject to the completeness of the documentation that is filed with the Superintendency). Any and all documentation that is submitted must be translated into Spanish by a licensed Panamanian translator.