CMA Approves Framework For Crowdfunding Debt Instruments Through Licensed Capital Market Institutions

The Capital Market Authority (CMA) has approved a regulatory framework allowing licensed capital market institutions to offer debt instruments via securities crowdfunding platforms. This follows an experimental phase that began in the second quarter of 2021. The initiative is now part of the activities under the license for arranging securities business.

Amendments have also been made to several rules, including those on the Offer of Securities and Continuing Obligations, Special Purposes Entities, and Capital Market Institutions Regulations. These changes will take effect upon publication. The framework aims to increase fintech activities and expand participation in offering debt instruments through crowdfunding, aligning with CMA's strategic goals.

The framework allows capital market institutions to offer debt instruments in the Sukuk and Debt Instruments Market. They must obtain an "Arranging" license for this activity. Firms with a FinTech Experimental Permit or those interested in providing this service can apply for the appropriate license as a capital market institution.

This initiative supports diversifying corporate funding sources and broadening investor access to debt instruments. It also enhances the attractiveness of the debt instruments market for issuers and investors.

Under the new framework, institutions must have an "Arranging" license to offer debt instruments through securities crowdfunding platforms. This is one of the exempt offering cases per the Rules on the Offer of Securities and Continuing Obligations. Private placements can be used to expand the scope and size of offerings.

The framework also includes developing requirements for registrable functions and safeguarding client funds for institutions conducting "Arranging" activities in securities crowdfunding.

Transition from FinTech Lab

Fintech companies currently operating under permits in the FinTech Lab can continue until their permits expire. Afterward, they may apply for licenses according to the new regulatory framework provisions. New applications for this activity in the FinTech Lab will not be accepted unless they involve innovative aspects requiring testing.

The experimental phase saw significant growth in debt offering and investment models, with sukuk issuance rising to approximately SAR3.4 billion in 2024 from SAR1.5 billion in 2023. Permits granted increased from 14 to 17 over this period.

Strategic Objectives

The CMA's approval aims to enhance the debt instruments market by enabling licensed institutions to offer these instruments through crowdfunding platforms. This effort is part of a draft titled "Regulatory Framework for Debt Instruments Offering Platforms and Investing in Them," previously published by CMA on its website and other platforms.

This development aligns with broader efforts to deepen market participation and attract more investors, contributing to a more robust financial ecosystem.

With inputs from SPA