Over the last year, there has been a gradual narrowing of the Capital Market Authority's (CMA) formal Securities Advertisement exemptions, which foreign investment managers had become accustomed to complying with when dealing with Saudi investors. This has led to an increased reliance on the CMA's reverse enquiry principles. We consider the key change, the reverse enquiry principles and how foreign investment managers can mitigate their risk.

  • Securities Advertisement to Institutions No Longer Exempt

Previously, any securities advertisement (pre-prepared marketing material) aimed solely at "Institutions" (also interchangeably known as "Investment Companies" and broadly defined as entities that own net assets of SAR10 million or more), certain exempt persons and capital market institutions was an exempt securities advertisement. However, Institutions were removed from the exemption when the Securities Business Regulations were amended in 2020. Consequently, Institutions seeking to invest in foreign investment products will need to adhere to the reverse enquiry principles set out in the CMA's FAQs to receive marketing materials from foreign investment managers.

  • Reverse Enquiry Principles Applicable to Institutions

The FAQs provide that investment managers that are licensed by a foreign regulator to perform the relevant regulated activity in any other capital market in countries that apply supervisory and regulatory standards similar to the standards applied by CMA may conduct business with an Institution in the Kingdom provided that:

  • The enquiry is initiated by the Institution with no marketing of products by the foreign investment manager
  • The reverse enquiry does not relate to securities or funds issued or listed in Saudi Arabia except bonds issued by the government; or any structured product, in which 50% or more of the underlying assets are securities or funds issued or listed in the Kingdom
  • Status of the CMA's FAQs

The CMA clearly states that the content of its FAQs shall not prejudice, or be considered as an alternative to, the provisions of its laws and regulations. In the event of any conflict between the FAQs and the provisions of its laws and regulations, those laws and regulations shall prevail.

Considerations for Foreign Investment Managers

Foreign investment managers that had been relying on the formal Securities Advertisements exemption to liaise with Institutions will need to reassess their bespoke pattern of doing business. When relying on reverse enquiries from Institutions, the use of appropriate disclaimers on marketing materials is recommended.

Originally Published September 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.