Applicability of the Securities Law, the requirements entities must comply with, notable developments and the resulting penalties for violations.
Sakshi PuriPartner, Banking & Finance
Chelsea PollardAssociate, Corporate Commercial
With the coming into force of the Securities Law (Royal Decree No. 46 of 2022) on 16th June 2022, entities operating within the securities industry should be mindful to ensure that they are compliant with such since it came into effect on 16th December 2022. The Securities Law permits the Capital Markets Authority (“CMA”) to extend this deadline for an additional six months; however, the CMA has yet to issue a resolution to this effect. Save for Articles 46 through 58, the Securities Law repeals the Capital Markets Law (Royal Decree No. 80 of 1998), which establishes and relates to the governance of the CMA. The executive regulations of the Capital Markets Law (CMA Decision No. 1 of 2009) shall remain in effect in so far as they do not conflict with the Securities Law until the CMA issues the executive regulations of the Securities Law. This article provides an overview of the applicability of the Securities Law, the requirements entities must comply with, notable developments and the resulting penalties for violations.
The Securities Law applies to all entities which operate in the securities industry, including, inter alia, brokerage, market making, custody and safekeeping, asset management, margin funding and investment banks.
The Securities Law has introduced trusts and collective investment (mutual) funds, which were not previously provided for under Oman law. Additionally, it established a “Client Protection Fund”, which will provide compensation to clients of entities licensed by the CMA and operating in the securities industry in the event of certain losses that occur to their assets kept in the custody of such entities. Special purpose companies are also now exempt from the provisions of the Foreign Capital Investment Law (Royal Decree No. 50 of 2019) and income tax under the Income Tax Law (Royal Decree No. 28 of 2009), as well as any fees specified by the CMA’s board of directors. However, the Unified GCC Customs Law shall remain applicable to such entities. It also prescribes the CMA with the power to reduce the regulatory burden under the Securities Law with respect to crowdfunding for the benefit of SMEs. Another notable development is the introduction of associations, which entities operating in the securities industry will be required to jointly establish to ensure compliance with international standards of professional conduct and accession/membership in such will be a prerequisite for obtaining a license from the CMA.
First and foremost, the Securities Law requires that all entities which conduct any securities-related activities or provide securities-related services or products must obtain a license from the CMA. Furthermore, information relating to relating to securities services or products not listed on the stock exchange must be provided to the CMA before issuing any offer to a client or the public, or before approving a request from a client or the public, to provide such services or products.
Where clients with low solvency or little experience in securities are concerned, they must be informed that the products or services are appropriate for their personal circumstances, including their ability to bear the risk, goals and needs, and any conflict with their interests has been sufficiently disclosed. Additionally, if, in spite of the risks, the client wishes to take advantage of the securities service or products, then after being informed of such risk, must accede to such in writing.
In relation to marketing securities products and services, entities must avoid inaccurate or misleading information. Moreover, all clients must be informed in clear, simple and transparent language that is in writing sufficient information, including comparisons to similar products, to make an informed decision and the clients must be given adequate time to understand the information before accepting the engagement. In the event of a change in material information, the clients must be informed of such as well as the available options, such as terminating the transaction.
In conducting security-related activities or providing security-related services or products, entities must ensure that the transactions are carried out in a fair and equivalent way so that the conditions of such transactions are not preferential, the client’s assets are valued and kept in a separate account and ensure it maintains the requisite capital as determined by the CMA.
Licensed entities must also obtain the approval of the CMA prior to appointing the members of the board of directors, chief executive officer and other senior officers. Additionally, the names of the employees in direct contact with the public must be published with the CMA, including their experience, credentials and any other appropriate data.
Prior to the issuance or the putting into circulation through a public or private offering, approval must be obtained from the CMA. There is an exception for short-term securities with a tenure of less than one year. The securities shall be issued, traded and kept in custody in electronic format only. All public offerings in Oman must be listed on the Muscat Stock Exchange. All security owners must be treated fairly and equally and the payment of dividends must be through the depository institution (Muscat Clearing & Depository).
Entities are prohibited from engaging in harmful practices, which include dealing or causing third parties to deal, based on undisclosed insider information, failure to disclose any material information concerning a security where disclosure is required by law, misuse of undisclosed insider or confidential information for the purpose of achieving personal goals or gains for third parties, dissemination of untrue or misleading information which would affect the price of the security or the reputation of the issuer or investment decision of a client, divulging information not available to the public, manipulating a security through fictitious orders or initiating an unlawful transaction or using any misleading or fraudulent means, trading in or causing to be traded any securities without periodic settlement of relevant obligations and engaging in any practices that go against fairness and integrity.
In addition to the acts listed above, it is also prohibited to violate any other provisions of the Securities Law or decisions, resolutions or orders issued by the CMA or other authority related to this law, including the ensuing regulations, failure to include material information on any public offering or private placement, failure to submit books, document, records or information in the form and time-frame required by the CMA, recommending any securities, products or professional services that are not in line with the financial capabilities of the client or providing any advice that is misleading or lacking material information involving a conflict of interest.
The potential administrative penalties under the Securities law include administrative fines between OMR 1,000 to OMR 200,000 or twice the profit generated or loss avoided, warnings, including general warnings to the public, mandatory correction orders, temporary suspension or permanent revocation of license or temporary or permanent removal of a person from working at any entity governed by the Securities Law. The violator may also be required to compensate the aggrieved client for the actual losses incurred in addition to the penalties. Additionally, the violator may be subject to criminal penalties, which may include imprisonment and monetary sanctions up to OMR 300,000.
Stakeholders involved in the securities industry should keep an eye out for further updates following the CMA’s issuance of the executive regulations, which are to be issued by June 2023, and the code of professional conduct. The regulations will provide further details on the regulatory framework for the Securities Law and will specify the requirements and procedures for registering with and obtaining a license from the CMA along with the associated fees, the activities which specifically require (or don’t require) a license and/or registration with the CMA, the documentation and recording keeping and retention requirements, the prohibited activities and the information and records entities may share with third parties.
For further information,please contact Sakshi Puri or Chelsea Pollard
Published in February 2023
