CMA opens public consultation on draft to enhance special purpose entity governance

The Capital Market Authority (CMA) called upon relevant and interested persons and capital market participants to share their feedback on the Draft to Enhance the Governance of Special Purpose Entities (SPEs) and Facilitate their Procedures.

The consultation period will run for 30 days, ending on April 29.

The draft aims to improve the attractiveness of SPEs as legal entities for issuing debt instruments and investment units by enhancing their governance and facilitating their procedures.

This initiative supports the CMA's strategic objectives of developing the sukuk and debt instruments market and fostering the growth of the asset management industry. The draft will also support the deepening of the sukuk and debt instruments market and the diversification of issuances by expanding the range of debt issuers. Ultimately, these efforts will contribute to increased market liquidity and the creation of new investment opportunities.

According to the proposed amendments, the key developments focus on broadening the range of eligible issuers, provided they comply with the relevant regulations governing their activities. Additionally, the amendments will allow SPEs to issue debt instruments through exempt offerings, alongside the existing public and private offering options. Furthermore, the proposal enables SPEs to conduct securitization transactions.

The amendments also aim to simplify procedures for SPEs and clarify the responsibilities of directors and fund managers (for funds structured as SPEs) within the entity’s by-laws.

To strengthen governance, the proposed changes require that the trustee be a legal entity, improve the provisions for trustee removal, ensure the independence of board members from the sponsor and originator, and refine the procedures for entity dissolution.

An SPE is defined as a legal entity established and licensed by the CMA to issue debt instruments or investment units. SPEs operate as independent financial and legal entities and cease to exist once their intended purpose is fulfilled, in accordance with the rules and regulations issued by the CMA.

The capital market has witnessed significant growth in the number of SPEs, with 464 entities established between 2018 and 2023. By the end of Q4 2024, this number had more than doubled, reaching 945 active entities.

The CMA emphasized that all feedback from relevant and interested parties will be carefully considered before finalizing the proposed amendments. Opinions and comments can be submitted through the Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform), affiliated with the National Competitiveness Center, at istitlaa.ncc.gov.sa. Alternatively, feedback can be sent via email to Laws.Regulations@cma.org.sa.

The draft can be viewed via the following link:

Amendments of the Rules for Special Purposes Entities, the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority, and the By-Laws of the Special Purposes Entity