The CMA Law introduced uniform legislation governing capital markets activities in Kuwait and changed the securities landscape for the better.
Sammy Al ShattiAssociate,Corporate Commercial
The introduction of the CMA Law introduced uniform legislation governing capital markets activities in Kuwait and changed the securities landscape for the better. In particular, Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its executive bylaws (collectively the “CMA Law”) established the Capital Markets Authority (the “CMA”) which developed a number of rules and regulations governing a broad range of capital markets activities.
These rules and regulations were then published as supplemental executive bylaws. Indeed, the executive bylaws set forth guidance on 17 different areas of concern for Kuwaiti capital markets and its actors. This article provides a high-level overview of the rules and regulations governing the marketing of foreign securities into the State of Kuwait.
Prior to discussing the CMA Law, it is important to highlight that foreign persons marketing securities into Kuwait must be sure to adhere to the Conducting Business in Kuwait rules set forth in Kuwait’s Commercial Law No. 68 of 1980. Assuming the foreign person complies with those rules, then they will become subject to the CMA and the CMA Law when marketing foreign securities into Kuwait.
To understand the rules regarding the marketing of foreign securities, we must first determine what Kuwaiti law considers to be a Security. The CMA Law’s glossary defines a Security is defined as “any instrument – in any legal form – that evidences ownership of a share in a financial transaction and that is negotiable pursuant to a license from the [CMA]”. The glossary provides a few examples of what a security is including issued shares of a company, loans, bonds, sukuks and other debt instruments, tradeable debt, units in a collective investment scheme (i.e. a fund structure) and liquid financial instruments whose value is derived from references to the value of an asset or a reference price. The CMA has explicitly exempted commercial papers like cheques, promissory notes, bills of lading, letters of credit etc… from the definition of Security within the meaning of the CMA Law.
Importantly, the CMA Law sets forth a list of Securities Activities in Section 1-2 of Module 5 of the CMA Executive Bylaws. In particular, Securities Activities include an Investment Advisor, fund managers, Subscription Agents, Securities Brokers and any other activity which the CMA deems to be a Securities Activity. In any event, persons providing those services or performing those activities are typically the persons or entities responsible for marketing securities opportunities to potential investors, including those potential investors in Kuwait.
The CMA Law requires licensure of any person (whether natural or legal) undertaking Securities Activities in Kuwait. Accordingly, where a Security is being offered into Kuwait by a foreign entity, then that foreign entity must be sure to comply with both the Conducting Business in Kuwait Rules and the provisions of the CMA Law. Alternatively, an entity may choose to engage a local licensed person, licensed to market securities into Kuwait and work with them to market the offering.
While there are limited exceptions for Professional Clients by Nature and Qualified Professional Clients (a concept similar to that of a Sophisticated Investor from common law jurisdictions), all foreign entities will typically be required to comply with the CMA Law and its rules. There are some limited safe-harbors which may only be available under exceptional circumstances.
If the foreign entity is marketing a security interest in a fund (whether open-ended or closed), then the CMA Law sets forth a number of additional rules and requirements with which the foreign entity must comply. These include, among others, seeking CMA Licensure of the fund offering itself. Indeed, the CMA must first review the fund documents and the foreign entity must submit an application to the CMA in the form required by the regulator.
In any event, assuming the foreign entity is compliant with the Conducting Business in Kuwait rules and has received appropriate licensure from the CMA then that entity may market securities into Kuwait. The overview set forth above is a high level view of the legal regime governing the marketing of foreign securities into Kuwait, it is not intended to be legal advice and we strongly recommend you consult with a qualified professional prior to engaging in any marketing activity in Kuwait.
For further information,please contact Sammy Al Shatti
Published in February 2023
