Continuing a recent spate of regulatory changes in Saudi Arabia to attract foreign investments, the latest Capital Market Authority (CMA)’s proposals indicate the Kingdom is preparing for the implementation of the GCC fund passporting regime.
Without directly referencing the GCC initiative, this liberalization via Draft Amendments of the Investment Funds Regulations (IFR) and Real Estate Investment Funds Regulations – issued on the 5th February 2025 for a 30-day feedback period – comes from the classification of licensed distributors.
While fund unit sales can now be handled only via three classes of distributors – a capital market institution licensed to carry out dealing and/or advising activities or a local bank – two new online channels have been proposed.
The CMA proposed to include any investment fund distribution platform plus e-wallet services licensed by the Saudi Central Bank – effectively removing a key barrier for the offering of foreign funds, especially to retail investors, as envisioned by the GCC fund passporting scheme to be implemented this year.
Further hints come from the new proposed IFR Article 97(c)(3): “A capital market institution licensed to carry out the activity of managing investments, provided that such foreign fund intended to be distributed and whose securities are to be offered in the Kingdom is established by such institution, and foreign investors own no less than 50% of the total value of the fund’s units.”
This means any foreign fund manager licensed to operate within Saudi Arabia can essentially offer this firm’s foreign-domiciled fund within the Kingdom – provided over half the fund value is in foreign investor holdings.
Other key changes in the CMA draft amendments, which apply across all local and foreign fund offerings, include specifying independently-issued benchmarks to reflect the fund’s strategies and investment objectives, plus reports on the credit rating or investment grade of the fund’s investments.
For money market funds managers, investments can only be in units of public money market funds with similar strategies, and units of public debt instruments funds with fixed income – removing access to private offerings.
The CMA further proposed: “A public fund which is a feeder fund may not invest in another feeder fund, or in a private investment fund. A public fund which is a feeder fund may not invest in more than one investment fund.”
For venture capital funds, the CMA is proposing at least 70% of the total asset value must be in unlisted emerging companies with high opportunities for growth and expansion and which have not been established for more than 10 years, at the time of the fund’s initial investment in those companies.
Among other technical amendments to streamline the IFR, the CMA introduced a voluntary withdrawal process by a fund manager plus a clamp on any management fees chargeable from that announcement date.
