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The Capital Markets Law and the regulation of investment business

Anthony Coleby

The regulation of investment business in Kuwait and the licensing of persons authorised to conduct it under the new law is covered by Chapter V of the Executive Regulations issued by the Capital Markets Authority (CMA). The chapter is 118 articles in length, making it the second-largest of the 13 chapters comprising the Regulations, and represents a very significant overhaul of the legislation that it either supplements or replaces.

The definition of "Investments" is found in the Regulations' first chapter. Consistent with many parts of Kuwait's legislation in this area, Chapter V then has a non-exhaustive list of what investment activities are required to be licensed by the CMA (at Article 124), having made it clear (at Article 123) that only activities conducted by a Kuwait company or from abroad through an agent located here are eligible for licensing.

The activities included are: investment broking, investment trading, investment advisory, investment management, establishing, operating and managing investment funds (including collective investment schemes), custodianship of investment fund assets, primary offering of investments and underwriting and (slightly unexpectedly) the operation of a credit classification agency. Pragmatically, there is provision for other activities to be included in the list, where the CMA deems this necessary.

The application procedure for an investment business licence is likely to be fairly demanding, especially in the requirement for applicants to show that they have in place a comprehensive set of risk management, client care, best execution, audit and reporting, and general compliance procedures. Additionally, the CMA has a wide discretion to impose further qualifications (both on the applicant and its employees).

For licence applicants there is some comfort in that, once granted. an investment business licence is valid (under Article 137) for a term of three years (whereas commercial licences issued by Kuwait's Ministry of Commerce and Industry are for one year only).

Also, and reflecting the fact that the new regulatory regime is in many respects entirely novel in the Kuwait investment community (and also, perhaps, the fact that the databases of most Kuwait commercial ministries and authorities are still not fully electronic) Article 213 seemingly grants a three-year period to applicants and licence holders to be fully compliant with the Regulations, although this is to be effected by a formal resolution of the CMA's Board of Commissioners, which is still awaited.

Anthony J Coleby

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