Saudi Arabia releases QFI rules

Saudi Arabia releases QFI rules

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Saudi Arabia’s Capital Market Authority has opened applications and released rules for asset managers seeking to become qualified foreign investors (QFIs) in order to invest in shares listed in the Saudi Stock Exchange.

Banks, investment managers, brokerages, securities firms, insurance companies and central banks applying will need to have a minimum of five years’ industry experience and assets under management of equivalent to SAR18.75bn or more, although the CMA have stated that they may reduce the minimum to SAR11.25bn.

The QFI Framework will offer legal ownership of Saudi-listed shares under the name of the investor in the depository center, after which investors will be able to exercise their rights as shareholders including voting rights, appointing a representative in the board of director of the companies in accordance to the Companies Law, and trading rights issues in accordance to CMA regulations including the Rules.

QFIs and approved QFI Clients will be subject to Saudi’s Income Tax Law and will be liable to pay 5% withholding tax from the total dividends distributed by the listed company. This will be the listed company’s responsibility to oversee.

Whether or not QFIs and their clients will be able to participate in initial public offerings (IPOs) is still under review at the moment.

Applicants must also be domiciled in a jurisdiction with regulatory standards equivalent to those of the CMA or acceptable to it. A list of acceptable jurisdictions will be released to authorised persons at a future date. These standards include that such jurisdictions satisfy all international financial standards and the requirements of the Anti-Money Laundering and Counter-Terrorist Financing rules.

QFI clients will also need to be approved by the CMA and adhere to its rules and QFIs will not be able to invest on client’s behalf until they are approved. Clients will only be allowed to be registered with one QFI and must either come from an acceptable jurisdiction or if they meet the requirements for a QFI.

Institutions that do not qualify as QFIs or approved QFI Clients will be able to get exposure to the Saudi stock market through the Swap Agreements Framework, however, this offers non- resident foreigners with economic benefits only rather than the legal ownership of underlying shares.

In order to help foreign investors stick to the foreign ownership limit of 49%, the CMA will publish ownership statistics on its website. QFIs, their clients and authorised persons will share responsibility for making sure the limits are not breached. In the case of non-compliance with the ownership limits, the CMA “can take the action it sees fit”.

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