CMA approves amendment to securities business, authorized persons regulation

The Capital Market Authority's (CMA) board issued resolution today, August 25, 2020, approving the amendments to the Securities Business Regulations, Authorized Persons Regulations and Glossary of Defined Terms Used in the Regulations and Rules of the CMA.

In addition, the authority amended the name of “Authorized Persons Regulations" to be “Capital Market Institutions Regulations”.

The amendments aim at regulating and developing the capital market, enhancing the growth of the financial sector in the Kingdom, improving the services provided to investors, as well as developing the securities business activities.

It further helps in regulating and developing entities under the CMA’s supervision, which carry out securities business activities, achieving investors' protection, increasing the attractiveness of authorization to carry out securities business and facilitating the conduct of business, in line with the international best practices and standards.

The main elements of the amendments are:

- Amending the term of Authorized Persons to be Capital Market Institutions

- Developing the scope of arranging and advising activities, and the types of authorization for dealing and managing activities

- Developing and facilitating the requirements for authorization to carry out securities business, commencement of business, and capital requirements

- Developing the requirements for registrable functions, conduct of business, system and controls and client money and assets

- Developing the requirements for client's understanding of risk, and the requirements for client suitability, including the provisions related to client classifications and Know Your Client

The amendments will be effective as of November 1, 2020, except for the amendments to the provisions specified in the below table, which will become effective as of January 1, 2022.

The resolution also included that the articles and annexes, which are mentioned in the table below, of the Securities Business Regulations issued on June 28, 2005, and the Authorized Persons Regulations issued on June 28, 2005, amended on August 18, 2017, shall continue to be effective until the date on which the aforementioned amendments come into effect.

Provisions of Securities Business Regulations which amendments to them will become effective as of 28/5/1443H corresponding to 1/1/2022G

Article 2: Securities Activities

Provisions of Capital Market Institutions Regulations which amendments to them will become effective as of 28/5/1443H corresponding to 1/1/2022G

Article 31: The Liability of the Capital Market Institution

Article 36: Client Classification

Article 38: Terms of Business with Clients

Article 39: Know Your Client

Article 42: Understanding Risk

Article 43: Suitability

Article 45: Margin Requirements

Article 50: Employees' Personal Dealings

Article 51: Recording Telephone Calls

Annex 5.2: TERMS OF BUSINESS REQUIREMENTS

Annex 5.3 (A): KNOW YOUR CLIENT FORM

Annex 5.3 (B): INVESTMENT INFORMATION FORM

Article 59: Outsourcing

Moreover, the CMA board’s resolution exempted the capital market institution, which its activity is limited to managing investment from complying with the provisions of the prudential rules, provided that the capital market institution must maintain owners' equity of not less than half of the paid-up capital, have six months working capital and comply with all requirements set forth in Chapter 22 of the prudential rules except Article (71) thereof.

The amendments can be viewed via the following links: