Title: The Capital Markets Authority Poll on the Draft Capital Adequacy Rules for Licensed Persons
Date Publish 18 February 2019
Kuwait, February 18, 2019. Based on the comprehensive vision of the Capital Markets Authority (CMA) to strengthen the legislative structure of the capital market, and in the framework of its efforts to activate its supervisory role and establish an effective regulatory system in line with the latest international standards and updates, it started to implement one of its strategic approaches “Preparation of the Capital Adequacy Rules for Licensed Persons", which represents a legal entitlement in accordance with the provisions of Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities, and its Executive Bylaws and their amendments, in particular item No. (2) of Article (66) of the Law, which stipulates that “A Person licensed to engage in the management of Securities activities shall comply with the regulations specified in the Bylaws and in particular as follows: 2- Maintain adequate capital”. Additionally, Article (6-4) of Module Six (Policies & Procedures of Licensed Persons) of the Executive Bylaws of Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and their amendments, stipulates that “The Authority has the right to impose additional requirements or to make requests for specific reports to ensure that the Licensed Person has the ability to continue their business, particularly holding a sufficiency of capital, in a manner that is commensurate with the nature and volume of the Securities Activities that they carry out.”
These rules represent an important step in this regard, especially as it is one of the effective regulatory tools and mechanisms that enhance the efficiency of the performance of companies licensed to deal in securities and ensure the safety of their financial centers in proportion to the magnitude and nature of the risks they are exposed to, and the creation of a secure investment environment by providing the necessary precautions to secure risks related to the activities and transactions of licensed companies, in particular the risks resulting from the introduction of new products and financial activities within the phases of market development (such as short selling, lending and borrowing of shares, repurchase agreements, etc.), as well as capital requirements that correspond to the activities of the capital market infrastructure institutions (such as the central counterparty, etc.).
It is worth mentioning that the CMA, in cooperation with the international consultant (Ernst & Young Consulting), has prepared draft capital adequacy rules for licensed persons, as well as all templates of rules in both Arabic and English. It has also assessed their suitability to the business environment through conducting quantitative impact studies (1 - initial, 2 - comprehensive and final), which included the implementation of the draft rules on a selected sample of licensed persons, where the results showed the relevance of these rules to the business environment to a large extent, especially in terms of coverage of all types of risks associated with practice of securities activities licensed by the CMA. The assessment results also showed that most of the licensed persons participating at this phase have high rates of capital adequacy according to the measurement requirements specified in the draft rules.
The main principles underlying the preparation of the draft rules can be summarized in the following points:
• Risk-Based Approach is a basis for preparing the rules.
• Licensed persons’ compliance with these rules is represented in meeting the following:
Regulatory Capital of Licensed Person > Risk Based Capital Requirement
• The rules have been prepared in accordance with a mechanism that takes into consideration all the financial instruments and securities activities currently licensed by the CMA, and those that will be implemented during the interim phase of the market development project, in addition to those that will be implemented in the future according to the final structure of securities activities and new financial instruments.
• Initially, four licensed activities were excluded from the application of the rules, and the minimum paid-up capital will suffice. These activities are:
- Asset Valuator
- Investment Advisor
- Credit Rating Agency
- Investment Controller
• Additional requirements were identified by the financial market infrastructure institutions (FMIs - Financial Market Infrastructure).
These rules are expected to help reduce minimum capital requirements in general, which will enhance capital utilization for companies and the market in general, and to balance the risks to companies and the regulatory capital to be maintained by them.
Finally, the CMA believes that it is important to question the views of all market participants as well as those concerned with securities activities in general regarding their various perspectives related to these activities. In preparation for the final adoption of these rules, the CMA allows them to follow up the draft of these rules, along with the English and Arabic templates attached to this announcement on the website, and will receive all their views and observations thereon by Thursday, March 7, 2019, by e-mail: CapitalAdequacy@cma.gov.kw.
In the same context, it should be noted that the CMA held an awareness workshop on Monday, February 18, for licensed persons concerned with implementation of these rules in order to share these draft rules, clarify their contents and explain their templates.
Notes to Editors:
The Capital Markets Authority was established pursuant to Law No. 7/2010, approved by the Kuwaiti Parliament in February 2010. Pursuant to the Law, the CMA shall regulate and supervise the securities activities, achieve transparency and fairness, observe listed companies’ execution of Corporate Governance regulations, and protect investors from unfair practices which violate the CMA's Law.
Furthermore, the Law's provisions stipulate the supervision of mergers, acquisitions, and disclosure operations. The CMA also aims to provide awareness programs related to securities activities.
For further information, please contact:
Public Relations & Media Office
نماذج تعليمات معيار كفاية رأس المال للأشخاص المرخص لهم
CMA Capital Adequacy Rules Templates
مسودة تعليمات كفاية رأس المال للأشخاص المرخص لهم
Draft Capital Adequacy Rules for LPs
Disclaimer: The information provided on this page is for reference purposes only, visitors are encouraged to review and understand the information provided in the official scanned document attached in the link above (if available). The CMA endeavors to ensure that the information on this page is complete and accurate, but the CMA does not guarantee the quality, accuracy, or completeness of any content at any time. In the event the information on this page is different from the content in the official scanned document attached in the link (if available), the official scanned document attached shall take precedence.