The Capital Market Authority's (CMA's) Board approved the regulatory framework for the development of Financing Investment Funds by approving new amendments to their governing instructions, with the aim of enhancing their role as financing channels in the Saudi capital market, enabling additional financing products that support economic growth and meet investors' needs.
The approved amendments aim to enable the public offering of financing investment funds, after offerings were previously limited to private placements, and to allow their listing on the Main Market and the Parallel Market, thereby contributing to the diversification of investment products and increasing total assets under management in the capital market.
The amendments included consolidating the provisions governing Financing Investment Funds into a single regulatory document, with the aim of unifying the legislative framework applicable to these funds and enhancing regulatory clarity.
The amendments also included approving the change of the title “Instructions on the Direct Financing Investment Funds" to “Instructions on the Financing Investment Funds" covering direct and indirect financing funds, which reflects the expanded scope of activities and the updated regulatory framework governing these funds. The amendments also included developing the regulatory requirements related to the operations and management of Financing Investment Funds, in a manner that enhances their operational efficiency and aligns them with best practices.
The new amendments approved a number of requirements related to the risk management of public financing funds, most notably that the total borrowing of a public financing fund may not exceed (15%) of its net asset value. In the event that the financing fund is listed on the Parallel Market, its total borrowing may not exceed (50%) of the total size of the fund. In addition, a public indirect financing fund may not assume exposure to a single beneficiary, or to more than one beneficiary belonging to the same group, at a level of (25%) or more of the total size of the fund, consistent with the requirements applicable to direct financing funds.
In addition, the amendments included defining the permitted investment scope for financing funds in a manner that limits exposure to highly volatile or low-liquidity assets, with the aim of effectively managing and enhancing liquidity until financing opportunities aligned with the fund's core objective become available.
The amendments also allow private financing investment funds to be open-ended in accordance with specific regulatory requirements, and classify public financing funds as a category of specialized public funds.
The amendments also included updated definitions for direct financing funds and indirect financing funds, the introduction of additional obligations on managers of public financing funds, as well as enhanced disclosure requirements within the quarterly and annual reports provided to unitholders of public financing funds, thereby strengthening transparency and governance standards for these funds.
This step comes as part of the CMA's ongoing efforts to develop the regulatory framework of the capital market and open new financing channels, supporting economic growth and keeping pace with developments in the financing and investment industry, while enhancing the position of the Saudi capital market as an attractive destination for local and international investors.
This follows the CMA's publication, in August, of the Draft Regulatory Framework to the Financing Investment Funds on the Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform) affiliated to the National Competitiveness Center and the CMA's website for public consultation for a period of (30) calendar days.
The Instructions on the Financing Investment Funds can be accessed through the following link:
The Instructions on the Financing Investment Funds
