CMA Invites Public Consultation On Draft To Enhance Governance Of Special Purpose Entities

The Capital Market Authority (CMA) has invited stakeholders to share their opinions on a Draft aimed at improving the governance of Special Purpose Entities (SPEs). The consultation period is open for 30 days, concluding on 01/11/1446H. This initiative seeks to make SPEs more appealing as legal entities for issuing debt instruments and investment units by enhancing governance and streamlining procedures.

The Draft's objectives align with the CMA’s strategic goals, which include developing the sukuk and debt instruments market and fostering asset management industry growth. By diversifying issuances through SPEs, the CMA aims to deepen this market, increase liquidity, and create new investment opportunities. The proposed changes will expand eligible issuers, provided they comply with existing laws and regulations.

One key amendment allows SPEs to offer debt instruments through exempt offerings in addition to public and private ones. This change is part of efforts to broaden issuer diversity. Furthermore, the amendments enable SPEs to engage in securitization activities, further expanding the range of potential issuers.

To simplify procedures for SPEs, the Draft clarifies directors' responsibilities and those of fund managers when funds are structured as Special Purpose Entities. Governance enhancements include requiring trustees to be legal entities, improving trustee removal provisions, ensuring board member independence from sponsors and originators, and establishing dissolution procedures.

A Special Purpose Entity is defined as an entity established under CMA regulations for issuing debt instruments or investment units. It possesses independent financial and legal status but ceases once its purpose is fulfilled according to CMA rules. Between 2018 and 2023, the number of such entities grew significantly from 464 to 945 by late 2024.

The CMA values feedback from individuals, government bodies, private sector organizations, and regulated entities in finalizing the Draft. This input is crucial for refining the regulatory environment. Comments can be submitted via the unified electronic platform Istitlaa or by email at [email protected].

With inputs from SPA