Title: Announcement regarding issuance of Disciplinary Board Resolution No. (85/2021 Disciplinary Board) (20 and 25/2021 Authority) and imposition of a fine of 12 thousand Dinars against Cap Corp Investment Company

Announcement regarding issuance of Disciplinary Board Resolution No. (85/2021 Disciplinary Board) (20 and 25/2021 Authority) and imposition of a fine of 12 thousand Dinars against Cap Corp Investment Company for violating the rules of Policies and Procedures of Licensed Persons, Clients’ Funds and Clients’ Assets, Collective Investment Schemes, Corporate Governance, and Anti-Money Laundering and Combating Financing of Terrorism.

For the following reasons:
First: Provision of Items (2), (6), (10), (12), and (15) of Article (2-1) of Module Six (Policies and Procedures of Licensed Persons) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The following was proven to the CMA through examining the policies and procedures’ manual submitted to the inspection team:

1. The policies and procedures submitted to the inspection team did not include a proof of regulating the implementation and management of the operations of the licensed activities as well as the documentary cycle required to be followed for the following activities:

• Collective Investment Scheme Manager.
• Investment Advisor.
• Subscription Agent.
• Investment Controller

2. Not providing the inspection team with the policies and procedures of the monitoring systems and internal control programs.
3. Not providing the inspection team with the policies and procedures of the separation between the activities carried out by the Company in a manner that ensures that the information is not leaked.
4. Not providing the inspection team with the policies and procedures of the compliance.
5. Not providing the inspection team with the policies and procedures of the Sharia supervision in accordance with the provisions of Islamic Sharia.

Second: Provision of Items (1), (2), (3), and (4) of Article (4-3) of Module Six (Policies and Procedures of Licensed Persons):

The risk management policy of the Company did not include the risk management mechanism represented by the following:

1. The Company’s method of managing credit risks within the framework of the risk management system, in addition to setting the maximum limits of exposure of one party, assessing periodically and setting out the procedures to be followed in the event of reaching the maximum limits.
2. The Company’s method of managing market risks to which it might be exposed in various circumstances and the methods to be followed in the measurement of such risks.
3. The Company’s method of managing liquidity risks to which it might be exposed and methods of managing liquidity that would enable it to deal with such risks in unexpected circumstances.
4. The Company’s method of managing operational risks to which it might be exposed and rating them according to the nature of Company’s business.

Third: Provision of Item (11) of Article (5-1-9) of Module Seven (Clients’ Funds and Clients’ Assets) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company failed to update the agreements concluded with the clients of its investment portfolios to include a proof of the Company and the client’s compliance with Law No. (7) of 2010 and its Executive Bylaws and their amendments, in terms of the agreements concluded with the clients.

Fourth: Provision of Article (1-2) of Module Thirteen (Collective Investment Schemes) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company marketed investment real estate transactions outside the state of Kuwait for a group of clients without being licensed by the CMA and signed contracts between the Company and the clients, as the Company made the necessary legal arrangements and procedures to enter such projects and maintain their rights. In addition, it received money from the clients as stipulated in the financial transactions submitted by the company to the CMA and registered all the cash money and assets that comprise the portfolio under the Company’s name as stipulated in Article 4 of the contract of incorporating, establishing, and managing an real estate investment portfolio specific to some of the projects that the Company has marketed for expected returns.

Fifth: Provisions of Items (6) and (7) of Article (5-6) of Module Fifteen (Corporate Governance) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

It was proven to the CMA that the audit committee had three meetings during 2019 and met the internal auditor three times during 2019, which violates the aforementioned provisions.

Sixth: Provisions of Items (6) and (10) of Article (6-5) of Module Fifteen (Corporate Governance) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The following was proven to the CMA:

1. The risk management committee failed to verify independence of the risk management officer from the activities that result in subjecting the company to risks in the following form:

• The risk management officer of the Company conducted the work of the liquiditysection in accordance with the Company’s organizational structure which falls under each of the operations’ officer and assistant manager of assets’ management which is one of the departments that result in subjecting the company to risks.
• The existence of the same job description for each of the position of risk management officer and the position of compliance officer which will subject the risk management officer to lack of independence when performing his tasks through performing tasks related to compliance in accordance to what is set out in the job description.   

2. The risk management committee held three meetings during 2019.

Seventh: Provision of Item (2) of Article (6-6) of Module Fifteen (Corporate Governance) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company failed to conduct entire separation of the tasks of several jobs pursuant to their job descriptions and the Company’s organizational structure, which will subject the employees of such jobs to a potential conflict of interests while performing their tasks.

Eighth: Provision of Article (6-8) of Module Fifteen (Corporate Governance) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company failed to prepare a report for the revision and evaluation of the internal audit systems of several departments of the Company that affiliate to the operations officer according to the Company’s organizational structure as follows:

• Finance, accounts, and information systems.
• Human resources and administrative affairs.
• Information technologies.
• Liquidation.

Ninth: Provision of Article (11-8) of Module Fifteen (Corporate Governance) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company failed to prepare Integrated Reporting Systems and did not explain or justify it as referred to in Article (1-1) of this Module.

Tenth: Provision of Article (2-2) of Module Sixteen (Anti-Money Laundering and Combating Financing of Terrorism) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

It was proven to the CMA after reviewing the Company’s policies and procedures’ manual of anti-money laundering and combating financing of terrorism that it is complying with Law No. (35) of 2002 Regarding Anti-Money Laundering that was cancelled after the issuance of Law No. (106) of 2013. The manual also included limiting the Company’s compliance with he instructions of the Central bank of Kuwait as a supervising entity without the CMA, which means that it did not provide the CMA with the updated policies’ manual of anti-money laundering and combating financing of terrorism.

Eleventh: Provision of Article (3-20) of Module Sixteen (Anti-Money Laundering and Combating Financing of Terrorism) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

It was proven to the CMA non availability of a system to identify whether a client, potential client or a beneficial owner is a PEP. However, it was classified by the Company as a lower risk client which did not subject him to ongoing and enhanced monitoring.

Twelfth: Provision of Article (4-7) of Module Sixteen (Anti-Money Laundering and Combating Financing of Terrorism) of the Executive Bylaws of Law No. (7) of 2010 and their amendments:

The Company failed to keep the records of the due diligence procedures of the clients for the determined period (five years from the date of closing the account).

The Resolution included the infliction of the following penalty: -

“Cap Corp Investment Company is fined an amount of one thousand Dinars for each of the violations attributed to it”.

In this regard, the CMA emphasizes the implementation of CMA Law and its Executive Bylaws on all persons dealing in securities activities, and urges them to comply with these rules in order to promote investors' confidence, create a sound investment environment, and implement the Law according to the principles of fairness, transparency, and integrity in line with the best international practice.