Saudi Arabia: New regulations for automated advisor services in the financial market

In a strategic move aimed at developing the financial market sector in Saudi Arabia and keeping pace with global digital transformations, the Capital Market Authority advisory services , which rely on algorithms and modern technologies to manage client investments.

A qualitative shift from experimentation to sustainable organization

This decision comes as a culmination of the successful pilot programs led by fintech companies within the "Fintech Lab" previously launched by the Capital Market Authority (CMA). The new amendments allow licensed financial market institutions to officially and sustainably offer robo-advisor services, which were previously limited to a pilot phase, and to conduct "investment management" or "investment management and fund operation" activities. This step is part of the Kingdom's efforts to achieve the objectives of the Financial Sector Development Program, one of the programs under Vision 2030, which aims to diversify income sources and promote savings and investment.

Strict controls to ensure market efficiency and investor protection

To ensure the integrity of transactions and protect investors' rights, the amended regulations imposed a set of strict technical and regulatory requirements, most notably:

• Systems testing: Requiring institutions to conduct periodic tests of technical systems and algorithms to ensure their reliability, at least 10 days before making them available to customers.
• Specialized personnel: It is necessary to appoint a specialized IT officer to manage and monitor the technical systems used in providing the service.
• Disclosure and transparency: Obliging institutions to explain investment strategies, algorithm workings, and potential risks in clear and unambiguous language appropriate to the target customer segment.

Enhancing transparency in performance and investment

The amendments focused heavily on transparency, requiring institutions to disclose the performance history of their investment portfolios since their inception, clearly showing net returns after deducting all expenses and fees, to enable investors to make informed decisions. The regulations also mandated diversification of investment assets to mitigate risk, prohibiting the concentration of portfolio investments in a single asset or source.

International dimension and diversification of options

With regard to investing in global markets, the regulations permit the provision of automated advisor services on securities listed outside the Kingdom, provided that these markets are subject to regulatory bodies that apply standards similar to those adopted by the Saudi Capital Market Authority, thus opening up broader horizons for individual investors to diversify their portfolios geographically in a safe and organized manner.

This comprehensive regulation aims to provide innovative and relatively low-cost investment solutions, which will contribute to attracting new segments of investors, especially individuals, and enhance the efficiency and depth of the Saudi financial market.