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General introduction to the regulatory framework

The CMA and the Saudi Arabian Monetary Authority (SAMA) are the governmental bodies that regulate asset management and financing transactions in Saudi Arabia.

The CMA regulates Saudi Arabia's capital markets, including securities, sales of assets, equity securities and debt securities (such as sukuk). Its power is granted under the Capital Market Law, which was originally implemented in 2003.

The CMA has issued the implementing regulations governing the management and offerings of securities, including but not limited to the following:

  1. the Rules on the Offer of Securities and Continuing Obligations, which govern the offering of securities in Saudi Arabia on both a private and public basis;
  2. the Authorised Persons Regulations, which govern the establishment of asset managers, their conduct of business, systems and controls and handling of client money and assets (which were recently amended and reduced requirements for applicants to obtain a management licence and dramatically reduced the required share capital (in some cases to as little as 5 million riyals);
  3. the following rules and regulations, which govern the activities, operations and management of companies publicly traded on the Tadawul and the Parallel Market:
    • the Listing Rules;
    • the Parallel Market Listing Rules;
    • the Merger and Acquisition Regulations;
    • the Market Conduct Regulations;
    • the Instructions of Book Building Process and Allocated Method in Initial Public Offerings;
    • the Regulatory Rules and Procedures relating to Listed Joint Stock Companies; and
    • the Corporate Governance Regulations;
  4. the Rules for Special Purpose Entities, which are intended to promote sukuk and the offering of other debt instruments;
  5. the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares, which govern investment by foreign investors in shares listed on the Tadawul and the Parallel Market;
  6. the Investment Funds Regulations, which govern private equity funds, hedge funds, money market funds and private real estate funds, significant amendments to which were implemented in November 2016;
  7. the Real Estate Investment Traded Funds Instructions, which provide for certain public real estate funds to be listed on the Tadawul as real estate investment traded funds, amendments to which were proposed in February 2018;
  8. the Closed-Ended Investment Traded Funds Instructions, which govern the establishment and listing of certain non-real estate funds (e.g., private equity funds) on the Tadawul;
  9. the Real Estate Investment Funds Regulations, which govern publicly placed real estate funds;
  10. the Instructions for the Foreign Strategic Investors' Ownership in Listed Companies;
  11. the Credit Rating Agencies Regulations, which regulate and monitor the conduct of rating activities; and
  12. the Securities Business Regulations, the Prudential Rules and the Investment Account Instructions, which govern the operations and actions of asset managers.

In late 2017, the CMA issued the Financial Technology Experimental Permit Instructions, which introduce a 'sandbox' accelerator under which certain financial services companies can apply for licences for products and services in new sectors. In addition, the SAMA announced the launch of the FinTechSaudi initiative in May 2018, which is also aimed at supporting the fintech ecosystem alongside the efforts of the CMA. On 6 February 2019, the CMA announced the issuance of an experimental permit for Falcom Financial Services Company to create an equity crowdfunding platform.

The SAMA acts as the central bank of Saudi Arabia, and is responsible for issuing currency and regulating the insurance industry. It is also responsible for encouraging the development of the Saudi Arabian banking system in both the public and commercial sectors. Additionally, the SAMA is Saudi Arabia's investment authority, and is responsible for managing the country's assets, both inside and outside of the country, although this role is being largely transferred to the PIF.

With few exceptions, individuals who are not citizens of a GCC country and non-GCC corporate entities (including Saudi entities with direct or indirect non-GCC ownership) must register with the Saudi Arabian General Investment Authority (SAGIA) prior to owning non-listed shares or real property in Saudi Arabia. The SAGIA registration process adds expense and time to any transaction. The primary exemptions to SAGIA registration are ownership in a CMA fund and investment in listed shares (or units in exchange-traded funds or REITs) through the qualified foreign investor (QFI) framework, the CMA-regulated swap regime and potentially pursuant to the Instructions for the Foreign Strategic Investors' Ownership in Listed Companies.

To date, the SAGIA rules have not governed foreign ownership in a CMA fund. Accordingly, there is no requirement that non-GCC investors in a CMA fund obtain SAGIA approval. A foreign investor's ownership of units in a CMA fund is only governed by the rules and regulations of the CMA. Moreover, GCC nationals and companies that are majority-owned by GCC nationals (and partly owned by non-GCC nationals) are permitted to invest directly in listed securities in Saudi Arabia. Additionally, financial institutions that register with the CMA as a QFI are permitted to buy and sell shares of publicly listed companies in Saudi Arabia on their own behalf and on behalf of their clients without SAGIA approval and other foreign corporate investors may own shares under the Instructions for the Foreign Strategic Investors' Ownership in Listed Companies.