Expanded Fund Distribution Channels - Fund managers are now authorized to distribute units through investment fund distribution platforms and electronic money institutions licensed by the Saudi Central Bank (“SAMA”). Such institutions may offer funds via digital interfaces, including websites and mobile applications.
Fee Caps and Restriction on Management Charges - The CMA now has the authority to impose caps on service fees and commissions charged by fund managers. In addition, fund managers are prohibited from charging management fees from the commencement of a fund’s liquidation. This prohibition extends to cases where the CMA has decided to remove the fund manager.
Manager Withdrawals and Fund Terminations - Under the new framework, a fund manager must obtain prior approval from the CMA before withdrawing. Once approval is granted, the outgoing manager is required to ensure the transition of fund management responsibilities to a successor within 60 days.
Public Fund Investment Reforms - Public funds may now subscribe to privately offered debt instruments issued by entities within KSA. At the same time, money market funds and capital protection funds are subject to new concentration limits to mitigate risk exposure. Specifically, such funds may not invest more than 10% of their net asset value in debt instruments issued by a single issuer, and their total investment in any one entity must not exceed 25% of net asset value.
Additionally, certain provisions related to benchmark requirements for funds have been revised, as per which fund managers must select a benchmark that serves as an appropriate standard for measuring funds’ performance. The benchmark must align with the fund’s investment strategy and objectives and must be issued by an entity independent of the fund manager. The selected benchmark, the reason for its selection, its suitability to the fund’s investment strategy and objectives, as well as information about the benchmark provider, including the basis and methodology used to calculate the benchmark (e.g., total return or price return), must be disclosed.
Private Fund Investor Protections - Retail investors’ cash contribution should not exceed 50% of the total cash subscriptions at the time of offering units in a private fund. In the case of closed-ended private or foreign funds, the transfer of units or securities must not, under any circumstances, result in retail investors holding more than 50% of the fund’s total value through cash contributions.
Moreover, investors are entitled to a full refund of their subscription monies, including any returns generated, without deductions if the offering period is extended beyond what is specified in the fund’s terms, if the minimum capital requirement is modified, or if certain material changes are made to the fund’s terms and conditions prior to activation.
If a fund offering is cancelled before commencement despite being fully subscribed, the fund manager must notify the CMA within 10 days and refund all subscription amounts and returns in full to unitholders.
Furthermore, fund managers are required to provide unitholders with access to all necessary information and documents related to the agenda items for any unitholder meeting, enabling them to make fully informed decisions.
Foreign Fund Distribution - Capital market institutions licensed to conduct management investment activities may now distribute and offer securities of foreign funds in KSA. This is subject to certain conditions, including that the foreign fund must be established or managed by such institution or its affiliate in a jurisdiction that is subject to regulatory oversight equivalent to that of the CMA. Additionally, at least 50% of the fund’s units must be held by non-KSA investors.
Distributors of foreign fund securities are now required to notify both the CMA and the securities holders in writing of the fund’s termination within 10 days of the end of its term. Whereas, in the case of closed-ended foreign funds, any transfer of securities must not result in KSA retail investors holding more than 50% of the fund’s total value through cash contributions.
Flexibility for REIT Traded on Parallel Market - In addition to the changes introduced under the REIT Regulations that align with the amendments to the IFR (including those pertaining to distribution platforms, fund manager fees, voluntary withdrawal of fund manager, compliance with accounting standards, rights of unitholders etc.), the REIT Regulations have been specifically amended, to allow REITs listed on the parallel market (“Nomu”), at the time of their establishment, to invest in real estate development projects without being bound by the investment ratios and asset restrictions set out in the REIT Regulations. Moreover, managers of REITs traded in Nomu are now required to ensure that once a real estate development is completed and capable of generating rental or periodic income, the REIT’s total investment in real estate development does not exceed 25% of its total assets, regardless of ownership.
According to the CMA, such reforms follow a year of significant momentum in KSA’s fund industry. Such regulatory enhancements aim to bolster investor confidence, promote transparency, and align the KSA’s investment fund ecosystem with international standards. By expanding distribution channels, strengthening investor protections, and offering greater flexibility, particularly for REITs and foreign funds, the amendments contribute to positioning KSA as an increasingly competitive and well-regulated asset management hub in the region.
