CMA OKs regulatory enhancements for investment funds

Logo of The Capital Market Authority (CMA)

The Capital Market Authority’s (CMA) board approved a set of enhancements aimed at developing the regulatory environment for investment funds in the Kingdom.

This includes amendments to the Investment Funds Regulations, the Real Estate Investment Funds Regulations, and the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority, the regulator said in a statement.

These amendments aim to develop the regulatory framework for investment funds to enhance the asset management industry and strengthen its competitiveness by identifying areas for improvement and adopting global best practices.

The amendments also include the development of additional regulatory provisions that support the growth of the investment fund and real estate investment fund sectors, enhance transparency and disclosure for fund unit holders, and establish governance standards that ensure greater protection of investors' rights.

The key amendments focused on boosting the efficiency of investment fund management by expanding the categories authorized to distribute fund units to include investment fund distribution platforms and electronic money institutions licensed by the Saudi Central Bank, through their websites or mobile applications.

The amendments also developed provisions related to the termination of investment funds and the dismissal of fund managers, in addition to regulating the voluntary withdrawal of managers of public and private investment funds.

Among these provisions is the requirement to obtain CMA's approval and the obligation of the current fund manager to transfer fund management responsibilities to the successor within 60 days of receiving approval. These measures aim to protect the rights of investors in both public and private funds, ensure a smooth transition of fund management responsibilities, safeguard the interests of unit holders, and enhance investor confidence in the capital market.

As part of efforts to expand investment opportunities for Real Estate Investment Traded Funds (REITs) listed on the Nomu-Parallel Market and to support the diversification of their assets and increase their flexibility to enhance potential returns for investors, the approved amendments allow such funds, at the time of their establishment, to invest in real estate development projects without being bound by the investment ratios and asset restrictions specified in the Real Estate Investment Funds Regulations, said the regulator.

Among the amendments approved by CMA is to allow public funds to subscribe to debt instruments offered privately if issued by issuers within the Kingdom. This aims to support the growth of the asset management industry, as it will enable public fund managers to subscribe to offerings from a broader range of debt instrument issuers, following the removal of previously imposed restrictions under the Investment Funds Regulations.

The amendments also require money market fund managers and capital protection funds not to invest more than 10% of the fund's net asset value in debt instruments issued by a single issuer, and that the total investments of the fund in a single entity do not exceed 25% of the fund's net asset value. These measures aim to limit risk and enhance portfolio diversification.

Furthermore, the amendments require managers of public funds that invest in debt instruments to disclose the credit ratings of the fund's top ten debt holdings in the fund's quarterly report, in order to enhance disclosure and transparency for investors in those funds.

Regarding the requirements for offering private and foreign investment funds to retail investors, the amendments include a provision aimed at enhancing investor protection. This provision stipulates that cash subscriptions from retail investors in a private fund must not exceed 50% of the total cash subscriptions in the fund at the time of offering its units. In the case of closed-ended private funds, the transfer of fund units must not, under any circumstances, result in retail investors holding more than 50% of the total value of the fund's units through cash contributions.

An additional provision was introduced stating that cash subscriptions from retail investors in the Kingdom must not exceed 50% of the total cash subscriptions in the fund when offering securities issued by a foreign fund. In the case of closed-ended foreign funds, the transfer of ownership of the securities issued by the fund must not, under any circumstances, result in retail investors in the Kingdom holding more than 50% of the total value of the fund's securities through cash contributions.

The amendments also included allowing capital market institutions licensed to conduct management investment activities to distribute foreign funds and offer their securities in the Kingdom, subject to specific requirements. This will enable clients in the Kingdom to invest in foreign funds.

The adoption of these amendments coincides with the Capital Market Authority's approval in the past year (2024) of the launch of 44 new investment funds across various categories, including 15 equity funds, 5 money market funds, 7 endowment (Waqf) funds, and 4 exchange-traded funds (ETFs), in addition to real estate funds and other specialized funds.

Investment funds accounted for the largest share of assets under management, reaching approximately SAR 700 billion by the end of 2024, reflecting a growth rate of 25.2% compared to 2023.

The CMA’s decision to adopt these amendments came following a thorough review of the regulatory provisions subject to amendment, carried out through three separate initiatives. Each initiative addressed a specific set of amendments and was published consecutively for public consultation, beginning in June 2024, followed by October 2024, and then a third round in February 2025, before the full adoption of the amendments across all three initiatives.

The Investment Funds Regulations

The Real Estate Investment Funds Regulations

The Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority