The way the Capital Markets Authority (CMA) assumed responsibility for the supervision of Kuwait's investment companies was always going to be a key part of the new regulatory programme for the oversight and operation of local financial markets and the restoration of investor confidence in them. But the first steps it has taken in this area since its launch in March 2011 have been surrounded by confusion and the unfortunate timing of policy statements that will likely instil confidence in nobody.
There has been speculation from various news agencies that investment companies would need to obtain two regulatory licences in future – one from the CMA to cover investment business, and one from the Central Bank (CBK) to cover financing activities. Apparently contradictory statements from both the CBK and CMA in the early summer did little to clarify matters.
Following a circular to all investment companies from the CBK on September 13 2011, however, it has now emerged that the CBK will only retain full supervision of those investment companies that are permitted to conduct limited banking and exchange business (by virtue of the Ministerial Decree (MOF) of 1987). Otherwise, with effect from September 13 (the date prescribed by Article 155 of the new law) ultimate supervision of all other investment companies passes to the CMA.
That said, the CBK states that it will continue to monitor the financial exposure of those investment companies that conduct financing only, and not investment business. At the same time, it will be for the CMA to supervise compliance with the further measures for investment companies introduced by the CBK in June 2010 attending to the key debt ratios (leverage, liquid assets and foreign debt).
The circular then concludes by explaining how investment companies may change their Articles of Association so as to fit within the supervisory remit of either the CBK or the CMA.
There is, therefore, no scope for any investment company to have two licences to conduct business, as some had suggested. There is, however, a limited residual overlap of supervisory powers between the CBK and the CMA in the case of financing-only investment companies that it had been hoped originally would be completely eliminated.
Anthony J Coleby
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