A strategic step towards strengthening financing channels in the Saudi market
In a significant regulatory step reflecting the ongoing development of the financial sector, the Board of the Saudi Capital Market Authority (CMA) has adopted an updated regulatory framework for the development of investment funds . This adoption came about through the approval of fundamental amendments to the regulations governing these funds, with the aim of strengthening their role as key financing channels in the Saudi financial market. Through this decision, the CMA seeks to provide additional financing products that support economic growth and meet the increasing needs of investors.
According to the official statement issued by the Authority, the new amendments primarily aim to enable the public offering of investment funds, a type of offering previously limited to private placements. The amendments also allow these funds to be listed and traded on both the main and parallel (Nomu) markets, which will directly contribute to diversifying available investment products and increasing the total volume of assets under management in the financial market.
General context and the decision's connection to the goals of Saudi Vision 2030
This step comes at a significant historical and economic juncture, as it falls within the Kingdom of Saudi Arabia's efforts to achieve the objectives of the Financial Sector Development Program , one of the key executive programs of Saudi Vision 2030. Historically, the majority of corporate and project financing has relied on the traditional banking sector. However, the Capital Market Authority has worked in recent years to deepen the financial market and create alternative and innovative financing channels. Allowing the public offering of these funds represents a qualitative leap, enabling a wider range of individual and institutional investors to participate in financing the real economy, thereby reducing the financing gap and supporting the stability of the financial system.
Unifying the legislative framework and risk management requirements
To ensure operational efficiency, the amendments included consolidating the regulations governing investment funds into a single regulatory document, thereby unifying the legislative framework and enhancing regulatory clarity. This involved renaming the “Instructions for Direct Investment Funds” to “Instructions for Investment Funds,” thus encompassing both direct and indirect investment funds, reflecting the broader scope of activities.
Regarding financing risk requirements , the Authority has approved strict controls to protect investors, most notably:
- The total borrowing of the Public Finance Fund shall not exceed 15% of the net value of its assets.
- If the financing fund is traded on the parallel market, its total borrowing may not exceed 50% of the fund's total size.
- The public indirect financing fund is prohibited from having an exposure to one or more beneficiaries belonging to the same group of 25% or more of the total size of the fund, similar to the direct financing fund.
Fund governance and expected economic impact
The amendments included defining the investment areas of the funds to limit exposure to highly volatile or illiquid assets, with the aim of effectively managing liquidity until funding opportunities become available that align with the fund's objectives. Private funds were also permitted to operate as open-ended funds under specific regulations, and public funds were designated as specialized public funds.
Local and Regional Impact: Locally, this decision will provide substantial liquidity to support businesses, particularly small and medium-sized enterprises (SMEs), creating new job opportunities and boosting GDP. Regionally and internationally, this move strengthens the position of the Saudi Stock Exchange (Tadawul) as the largest and most important financial market in the Middle East and North Africa region, making it a more attractive destination for foreign capital seeking diversified investment instruments with high governance and absolute transparency. This is further emphasized by the Capital Market Authority's imposition of rigorous disclosure requirements within the quarterly and annual reports of unit holders.
