Capital Market Authority Strategic Plan

Transcription

1 Capital Market Authority Strategic Plan Strategy and Research Division - Strategy and Program Management

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3 CMA Board Statement The CMA has been continuing its efforts aimed at making the capital market more stable and supportive of the national economy and more appealing for investment. As part of its role in regulating and developing the capital market and protecting investors, the CMA has developed a comprehensive strategic plan covering the period The preparation of this plan took into account harmonization with the Kingdom of Saudi Arabia s 10th Development Plan as well as the required resiliency to adapt to future changes. Through the implementation of this plan, the CMA seeks to achieve its vision to make the Saudi capital market a pioneer market earning the trust of investors and delivering fairness, efficiency and transparency in securities transactions. During the preparation of the strategic plan, we have studied the most important challenges to the capital market, its needs and other influential factors. We have also taken into account the views and comments of specialists at the CMA and those of market participants such as listed companies, authorized persons (APs) and investors. Eventually, the results of this study have formed the building blocks in the designing of our plan. Nevertheless, the CMA has presented its plan to the Advisory Committee to ensure that it is comprehensive and suitable for the upcoming period. After reviewing and analyzing the information and data, we have identified and prioritized the strategic issues. Also, benchmarking studies have been conducted to explore international best practices in developed and emerging markets. Several workshops have been organized to develop the components of the strategic plan including strategic objectives and initiatives which are broken down into four strategic themes, namely: (1) foster capital market development, (2) promote investor protection, (3) improve the regulatory environment, and (4) enhance CMA s organizational excellence. Finally, the CMA Board extends its thanks and gratitude to the CMA s employees for their distinguished efforts in developing the strategic plan, and to whoever contributed to enriching it. The CMA will continue consultation and communication with market participants to consider their views and suggestions, as it recognizes the importance of such approach in implementing its strategic plan.

4 Strategic Plan Themes and Objectives

5 Vision: To make the Saudi capital market a pioneer market earning the confidence of investors. Promote Investor Protection Improve the Regulatory Environment Foster Capital Market Development Enhance CMA s Organizational Excellence Expand Institutional Investor Base. Support the Development of Authorized Persons and Develop Human Resources in Capital Market Sector. Support Growth of Asset Management Industry. Promote Issuance of Sukuk and Debt Instruments. Support Saudization of Jobs at Authorized Persons. Deepen the Capital Market to Enhance its Role in Supporting the National Economy Raise Governance Level and Improve Disclosure Requirements in the Capital Market. Promote Investment Literacy and Awareness of Market Participants. Increase Compliance with the Capital Market Law and Implementing Regulations through Effective Supervision and Awareness, and Deterrent Policies. Adopt a Disclosure- Based Regulatory Approach and Continuously Enhance Implementing Regulations. Enhance Coordination and Cooperation with Concerned Government Entities on Capital Market Matters. Improve CMA s Internal Efficiency and Effectiveness. Enhance Internal Governance and Risk Management. Facilitate Electronic Transition of CMA s Operations and Services. Mission: Regulate and develop the capital market to be an investment-conducive environment; promote fairness, efficiency and transparency in protection of market participants.

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7 Responsibility Make every effort with honesty and responsibility to achieve the CMA s mission and objectives. Integrity The CMA shall be a role model in integrity with every sense of this value encompassing truthfulness, fairness, and non-conflict of interests while complying with the rules and regulations. Transparency Act openly by providing relevant information and promoting disclosure in the capital market. Values Cooperation &Consultation Strengthen the values and practices of cooperation, teamwork spirit and mutual respect within the CMA and with market participants. Staff Care Offer a professional work environment that recruits and maintains the best human capabilities. Social Responsibility Contribute to training, education and awareness activities in the society, and constantly improve the services rendered to market participants. Excellence Ignite the capabilities of CMA staff to take initiatives, commit to quality, be creative and responsible towards excellence, and keep professional communication with all market participants.

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9 First Theme: Foster Capital Market Development

10 First Theme: Foster Capital Market Development Developing the Saudi capital market is one of the main functions stated by the Capital Market Law (CML). Therefore, the CMA seeks to create an investment-conducive environment characterized with fairness, efficiency, and transparency where multiple investment channels exist to serve all types of investors. Under the theme of fostering capital market development, the CMA works on achieving a number of various strategic objectives, including deepening the market and expanding the institutional investor base given the positive impact on market efficiency; developing the authorized persons (APs) to be able to provide competitive services to their clients; supporting the growth of asset management industry, particularly through mutual funds, and developing the Sukuk and debt market in the Kingdom. In addition, the CMA endeavors to develop human resources and increase Saudization in the capital marker sector. Strategic Objective (1.1): Expand Institutional Investor Base Institutional investment plays an important role in developing the capital market; markets which have a wide range of institutional investors are marked with low volatility and high efficiency. Moreover, increased institutional investor s ownership of strategic shareholdings in invested companies promotes governance practices in those companies and increases their transparency. This is difficult to achieve under the dominance of retail investors. From this principle, the CMA is keen to provide the suitable environment for institutional investor growth by implementing several initiatives in this regard. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Increase Initial Public Offerings (IPOs) Allocation for Institutional Investors The CMA works on gradually increasing IPOs allocation percentage for institutional investors (for issuances offered above nominal value). The CMA anticipates pipelining most IPOs to institutional investors by the end of the strategic plan, provided that the stake of publicly offered mutual funds is 90% of the total portion dedicated to institutional investor categories. The purpose of this initiative is to expand the base of institutional investors, particularly public mutual funds Work to Finalize the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares Driven by its belief to enhance the capital market s efficiency and boost institutional investment in line with the best international practices, the CMA has been working on finalizing the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares, and determining the required procedures for implementation. This in turn will contribute to classifying the Saudi stock market under emerging international markets indices. 10 Capital Market Authority Strategic Plan

11 1.1.3 Assess the Feasibility of Allowing Foreign Investors to Own Strategic Shareholdings in Listed Companies The existence of a strategic foreign partner in listed companies, who has the required experience and expertise, contributes to transferring knowledge and operational experience. It also opens up new markets for listed companies products, makes them more capable of utilizing success opportunities and eventually improves their performance. Due to the importance of this initiative in supporting institutional investment, the CMA plans to assess the feasibility of allowing foreign investors to own strategic shareholdings in listed companies and coordinate with concerned government parties on that regard Encourage the Establishment of Citizen Savings Schemes The CMA believes in the importance of establishing and introducing savings schemes for citizens as they result in promoting the culture of savings in the society and expanding institutional investors base. Therefore, the CMA undertakes to study the best international practices on assessing the feasibility of having such schemes whose assets are managed institutionally. The CMA will also work on developing an action plan based on the final recommendations of the study and then come to an agreement with the related parties on such plan Facilitate Introducing New Financial Instruments and Applying New Mechanisms in the Market The CMA works continuously to provide a stimulating regulatory environment to introduce new financial instruments and apply market mechanisms in accordance with the best international practices and in harmony with the Saudi capital market s readiness and the needs of market participants. Hence, the CMA will set an action plan for introducing new financial instruments and applying new market mechanisms. It will also conduct the necessary feasibility studies to pave the way to approve and implement respective regulatory framework. Capital Market Authority Strategic Plan 11

12 First Theme: Foster Capital Market Development Strategic Objective (1.2): Support the Development of Authorized Persons and Develop Human Resources in Capital Market Sector The development of the capital market depends on the development and capabilities of its participants, especially financial services providers. The CMA dedicates great attention to the business development of APs; it seeks to create a fair and competitive environment, and strengthen controls and capital adequacy of APs. Recognizing the importance of human capital in developing the securities sector, the CMA s strategy has comprised a number of development initiatives that are intended to raise knowledge and professionalism levels of the employees working at APs and increase the appeal of the securities sector to job seekers. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Facilitate Mergers and Acquisitions among APs In order to create financial institutions that enjoy robust capital adequacy and increase the efficiency of their resources management and offer better services for their clients, the CMA intends to facilitate mergers and acquisitions among APs. To serve that end, the CMA will review and update the relevant rules and regulations as well as its policy on the fees for securities services. It will also organize awareness programs on the procedures of mergers and acquisitions among APs Support the Launch of AP-Sponsored Fresh Graduate Training Program One of the fundamentals for the development of financial services is the availability of highly qualified and skilled human resources through education, training and practice. Recognizing the significance of private sector contribution to achieving this purpose, the CMA will cooperate with the APs to design and sponsor an annual training program targeting fresh graduates. Such program will involve intensive training courses on legal and technical aspects of the capital market along with on-the-job training with the APs. The goal of the program is to meet the need of the securities sector for qualified human resources, and sustain its future growth Create Fair Competitive Environment among APs The CMA recognizes how a fair competitive environment among APs categories is crucial to the development of the securities market. Accordingly, the CMA has been reviewing the regulatory aspects and current practices in the market to ensure that no single category has the upper hand over the others because of its ownership structure or available product/service distribution channels. The review process includes, but not limited to: margin trades, settlements of securities transactions, trading commission discounts, and outsourced services by APs. Also, the CMA seeks to enforce what is provided by the CML on transforming the Securities Depository Center (SDC) into a company that runs the operations of depositing, transferring, settling, clearing and registering ownership of securities traded on the Exchange. 12 Capital Market Authority Strategic Plan

13 1.2.4 Enhance Competency and Eligibility of Registered Persons and Instill Continuous Professional Education Culture Investor confidence in the quality of services provided by APs relies mainly on the competency and eligibility of individuals working for them. This industry will not grow and prosper if there is no professionally qualified staff to render the services in high efficiency and quality. Consequently, the CMA will develop eligibility and competency standards of the registered persons and set policies and continuous professional education programs. This initiative is intended to ensure that registered persons always have the required eligibility and competency Improve CMA Qualifying Exams for Registered Persons Since its inception, the CMA has constantly worked on raising the level of professional qualification and competency of personnel involved in the securities sector. It has developed a series of mandatory professional qualification examinations in the area of securities business for registrable functions within the APs. Given the accelerated pace of development in the financial sector in terms of regulations, services and available products, the CMA will improve the current examinations offered to registered persons to refine their quality and to cope up with changes in the capital market. This can be delivered by benchmarking these examinations and applying necessary modifications based on the outcomes, and offering specialized examinations as needed by the financial sector Raise APs Awareness with Best Workplace Index Standards To increase the appeal of securities market to job seekers, and lift its capacity to recruit qualified human resources, the CMA intends to develop an index for the Best Workplace at APs. This index will focus on measuring the quality of workplace based on a group of standards, namely the availability of: (1) organizational structure, (2) learning and development strategy, (3) performance management systems and policies, (4) comprehensive HR policies. Accordingly, the CMA will develop awareness materials and an executive plan to introduce the index and its goals Encourage Organization of an Award for APs with Best Workplace Sponsored by Reputable Entities Awarding APs who made distinguished efforts to anchor institutional work in their business management through compliance with the standards of the Best Workplace index is an important factor in creating a competitive environment among APs to lift their capacity to recruit qualified human resources and increase the attractiveness of the securities sector for job seekers. Thus, the CMA will encourage independent entities to organize and run an annual award to honor the APs with the best workplace, bring in sponsors, and urge APs to participate. Capital Market Authority Strategic Plan 13

14 First Theme: Foster Capital Market Development Strategic Objective (1.3): Support Growth of Asset Management Industry The CMA attaches paramount importance to asset management industry. It is one of the main securities business activities regulated by the CMA. Asset management contributes to providing various investment products, professional management of client assets, and boosting professional practices and institutional conduct in the market. The CMA will execute a number of initiatives to support the growth of this industry; these involve supporting diversification of investment products distribution channels, updating related regulations, particularly legal entity regulations, increasing client asset protection, supporting occupational qualification for professionals working in asset management field, and promoting investor awareness. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Develop Real Estate Investment Funds Regulations As part of its regulatory and supervisory role, the CMA is keen to develop its Implementing Regulations in line with capital market innovations. Due to the importance of real estate investment funds as an instrument for investment finance in the real estate sector, the CMA intends to update the Real Estate Investment Funds Regulations in accordance with best international practices and with the developments in real estate investment. The CMA anticipates that the implementation of this initiative will lead to increased protection of funds assets and information as well as improved disclosure and more periodical reports to investors Diversify Investment Funds Distribution Channels The reliance of investment funds distribution on direct sale through fund managers limits the spread and outreach of those funds to a bigger number of investors because of high marketing costs. On the other hand, diversified and multiple distribution channels contribute to fairer competition among fund managers enabling them to reach as many investors as possible. They also offer different investment products and sufficient information which allow investors to make comparisons of such products. This initiative aims to regulate investment funds distribution, support it by encouraging building electronic distribution platforms and allow others than the APs to distribute Develop Regulations on the Legal Form of Investment Funds The CMA works constantly to improve the regulatory setting of investment funds, provide a flexible framework that responds to the needs of market participants in line with generally accepted international practices, and increases protection of clients money and soundness of the market as a whole. In this context, the CMA intends to develop the regulations that allow establishing investment funds as legal entities independent of fund managers and custodians as opposed to the current legal situation of having contractual agreements between a fund manager and its investors. 14 Capital Market Authority Strategic Plan

15 1.3.4 Mandate Independent Custodian for Investment Funds In accordance with best international practices, and to develop investment funds mechanism, the CMA intends to review the functions and business of custody services of investment funds and set up the requirements necessary for achieving the independence custody services from management. The CMA anticipates that the execution of this initiative will result in more protection for funds assets and information, applying better governance on funds and increasing their appeal to investors Raise Public Awareness on Investment Funds Investor s awareness and investment knowledge play a key role in protecting his/her savings and directing them into the most ideal investment through regulated channels that are professionally managed according to his/her needs, investment restrictions and risk tolerance. To realize that and to support institutional investment and spread the culture of institutional investment in securities via investment funds, the CMA will work on boosting the knowledge and raising the awareness of investors on investment funds through awareness campaigns and educational materials targeting investors in general. Capital Market Authority Strategic Plan 15

16 First Theme: Foster Capital Market Development Strategic Objective (1.4): Promote Issuance of Sukuk and Debt Instruments Sukuk and debt instrument market in the Kingdom of Saudi Arabia is relatively small, especially when compared to its peers in emerging markets. It represents a little percentage of bank finances and GDP. Development of this market requires joining forces and collaboration among several entities that affect its growth, sustainability and appeal to investors and issuers. The importance of sukuk and debt instrument market lies in completing the set of investment products for different categories of investors, enabling them to diversify their investments, and creating financing alternatives for both public and private sectors projects. Therefore, the CMA has greatly attended to the development of such market by executing several initiatives, the first of which has been creating a strategic national direction for this market and enhancing the efficiency of debt instrument issuance. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Develop a Strategic National Direction for Sukuk and Debt Instrument Market The CMA strives to develop the sukuk and debt instrument market in the Kingdom given its significance to the national economy and being a prime alternative for supporting development projects finance. The prosperity and empowerment of the sukuk and debt instrument market depend on a group of elements and success factors associated with the CMA and external parties; this requires coordination with these parties and a consensus of opinion between the CMA and those parties on the importance of sukuk and debt instrument market in the future as a key alternative source of finance to commercial banks. Accordingly, under this initiative, the CMA aims to develop a unified strategic national direction on the future of the sukuk and debt instrument market which necessitates the agreement of public policies of decision makers and entails that every party play its respective role in relation with the components and elements of market development falling under their jurisdiction Improve and Facilitate the Procedures of Sukuk and Debt Instrument Offering, and Deepen the Secondary market The CMA seeks to develop the sukuk and debt instrument market in the Kingdom in terms of issuance and trading. Towards the development of sukuk and debt instrument initial issuance, the CMA embarks upon facilitating offering procedures and easing regulatory and structural difficulties hindering their issuance, hence, making the Saudi capital market appealing to issuers. In this regard, the CMA will review the procedures and requirements of sukuk and debt instrument offering in order to adopt a different review approach and variant requirements for offering based on several considerations. These considerations include, for example but not limited to, the past offering experiences with sukuk and debt instruments, credit ratings of issuers, targeted types of investors, and the level of complexity in structuring the offered debt instrument. As for sukuk and debt instruments trading on the secondary market, the CMA intends to regulate the listing of private placement sukuk and debt instruments, anticipating that this would contribute to increasing the number of listed financial instruments and more market depth. 16 Capital Market Authority Strategic Plan

17 1.4.3 Increase Awareness and Knowledge among APs and Companies on Debt Instrument Offering Procedures In order to maximize the desired results out of the CMA s efforts to improve and facilitate the procedures of sukuk and debt instrument offering and deepen the secondary market, the CMA intends to inform APs and companies about the applied approach of review, offering requirements and observed considerations. Through this step, the CMA drives at ensuring that APs and companies clearly understand the regulatory procedures and requirements of offering. This is to avoid rendering them not to be interested in the capital market as a source of finance due to untrue impressions Support the CMA s Capacities to Handle Applications for Sukuk/Debt Instrument Issuance To be able to carry out its regulatory functions of developing and processing sukuk/debt instruments issuances, the CMA works through this initiative to ensure that it has adequate and professionally well-qualified human capacities through continuous training and making use of experienced and expert individuals in knowledge transfer as well as informing CMA specialists about the latest developments and practices. This comes under the CMA s dedication to facilitate and support the processes of issuing sukuk/debt instruments, and boost its business efficiency Develop Regulatory Infrastructure to Support Securitization Securitization helps companies, including those with low credit ratings yet have high quality assets, to raise finance from the capital market. The CMA sees securitization as one of the main tools to support the development of sukuk/debt instrument market. Therefore, the CMA undertakes to develop a regulatory infrastructure that supports the launch of securitization in the capital market, and provide a flexible regulatory framework which meets the needs of market participants, and increases protection of client assets and market soundness in general. The CMA is currently engaged in issuing regulations on special purpose vehicles (SPVs) for debt instrument issuances. With this initiative, the CMA intends to increase the capital market s appeal as a source of finance and stimulate the trading of securities issued by underlying securitized assets. Capital Market Authority Strategic Plan 17

18 First Theme: Foster Capital Market Development Strategic Objective (1.5): Support Saudization of Jobs at Authorized Persons One of the government s development goals is creating job opportunities to employ citizens entering into the job market, and reducing unemployment rate in the national workforce to improve the standard of living and quality of life for all citizens. Being devoted to support the Kingdom s development goals, and due to the importance of investment in the national human element to support Saudization, the CMA has endorsed many initiatives that focus on Saudization of jobs in the capital market sector in general and in securities services providers, i.e. the APs, in particular. These initiatives involve cooperation with educational institutions to scale up the suitability of education outputs to meet the needs of the capital market, and with the APs to increase training opportunities for university students and employment of fresh graduates. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Develop Database for Jobs in Capital Market Sector Laying proper plans and timing their execution to increase Saudization rates in the capital market depends on knowing the details of the current situation of those rates. Hence, building a comprehensive database for workers in this sector of all job categories is highly important as it enables the CMA to analyze this data, identify weaknesses in Saudization, and set the necessary plans and training programs in order to reach the targeted rates. Driven by the principle of transparency and information sharing, the CMA intends to reveal the results of its analysis to the APs as so to urge them to support the CMA s efforts in job Saudization and take part in achieving the targeted rates Encourage APs to Accommodate Saudi Cooperative Training Students and Employ Fresh Graduates Cooperative training is a key element in increasing the appeal to university senior students and multiplying their chances of getting a job in the capital market sector. It allows students to gain more technical knowledge and professional values. It also enables APs to closely observe the potentials of trainees and recognize their future prospects. This helps in securing employment for graduates and increases its success possibilities and continuity. For example, the CMA will encourage APs to accommodate cooperative training students and employ Saudi fresh graduates. It will also urge them to participate in student exhibitions, develop internal training programs and communicate with cultural missions and graduate affairs in universities. 18 Capital Market Authority Strategic Plan

19 1.5.3 Launch a CMA-Sponsored Fresh Graduate Training Program As part of the ongoing efforts in supporting the employment of Saudi fresh graduates in the capital market sector as well as increasing Saudization in such sector, the CMA adopts launching a training program to strengthen the knowledge of participants with the technical and regulatory aspects of securities business activities. As a result, the graduates of this program will be ready to work in the capital market sector without having to re-qualify them. The program is intended for Saudi fresh graduates with outstanding academic records; it will be organized regularly over the course of the strategic plan. Since the program s objective is to enrich the market with qualified national cadres, APs will be given access to the profiles and results of trainees in order to increase their chances of employment Scale up Suitability of Education Outputs to Meet Needs of Employment in the Capital Market Sector The CMA realizes how good and proper qualification helps national human resources to get job opportunities in the capital market sector, thus, it aims to increase their suitability and readiness in line with work requirements in this sector. The CMA also intends to have mutual cooperation with educational institutions to enrich the capital market sector with qualified workforce and relevant studies. This includes making capital market data available to students and researchers in the area of securities markets, supplementing curriculums through lectures delivered by specialists, urging educational institutions to align their capital market related curriculums and include the content of CMA s qualification certificates (CMEs) within their curriculums Assess Feasibility of Establishing a Financial Institute The CMA intends to assess the feasibility of establishing an institute specialized in financial sciences which enjoys an autonomous legal personality and aims to promote the level of scientific and professional performance in financial services functions in the Kingdom. It will also develop the competencies and skills of workers in the field, contribute to better regulated professional practices, provide consultancy and run professional examinations for capital market functions. In addition, this institute is expected to conduct studies and research, publish magazines, books, and scientific periodicals, and organize symposiums and conferences on the domain of financial services. Capital Market Authority Strategic Plan 19

20 First Theme: Foster Capital Market Development Strategic Objective (1.6): Deepen the Capital Market to Enhance its Role in Supporting the National Economy The CMA realizes the importance of the capital market as a channel of fund raising in supporting the growth and sustainability of companies. The CMA as per its law-prescribed functions, and in coordination with the Saudi Stock Exchange Co. Tadawul and other concerned entities will set up appropriate controls and initiatives which will motivate the private sector s different companies and government-owned companies as well as other government-owned assets (that can be transformed into companies) to offer and list their shares on the market; this reflects the real size of the contribution of these companies into the Kingdom s economy without undermining investor protection. The CMA anticipates that this will create economic entities capable of supporting the national economy and providing more investment opportunities for investors. In line with the Kingdom s development objectives, the CMA will carry out a number of initiatives to deepen the market; this involves increasing the efficiency of offering and listing procedures, and exploring ways to stimulate companies to list their shares and raise awareness of the importance of listing. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Increase the efficiency of Corporate Offering and Listing Procedures on the Capital Market The efficiency of offering and listing procedures applied by regulators affects market attractiveness to issuers. In order to encourage all types of companies to offer and list their shares on the capital market, the CMA has been reviewing and improving the regulatory framework of Initial Public Offering (IPOs) and accelerating the procedures of IPO applications without prejudice to statutory requirements while ensuring more efficient procedures and maintaining high quality review. The CMA hopes that this step will lead to overcoming any procedural or regulatory difficulties, hence, rendering the Saudi capital market an attractive venue for issuers Explore Ways to Stimulate Companies to Offer and List Shares on the Capital Market Private companies are a major pillar of support to the national economy. To increase the chances of sustainability of those companies and to prevent their collapse that may arise as a result of the transition of ownership and management from one generation to another, the CMA works to explore ways to stimulate these companies to offer and to list their shares on the capital market. To that end, the CMA is coordinating with ministries and other concerned entities on the incentives and actions that can encourage or drive unlisted companies to offer and list their shares on the capital market, as well as the development of a preparatory program aimed at making companies ready to meet offering and listing requirements. 20 Capital Market Authority Strategic Plan

21 1.6.3 Raise Corporate Awareness of the Importance of Listing on the Capital Market to Maintain Sustainability Capital markets contribute largely to the support of financial and administrative stability of listed companies. This can be achieved by promoting corporate governance practices, the compliance of those companies with the legislations and regulations applicable to them and facilitating access to sources of funding their operations as well as strengthening their identity, growth prospects and entry into new markets, thus, increasing their competitiveness. Therefore, the CMA will work with relevant entities to narrow down unlisted companies and gather information to provide awareness programs for such companies about the importance and benefit of going public and getting listed on the market Assess the Feasibility of Establishing a Second-Tier Market Second-tier markets impose more flexible listing requirements compared to main securities markets. Thus, companies traded on those markets are predominantly low on profit, newly incorporated and highly volatile. In the light of that, the CMA intends to conduct a feasibility study on the establishment of such market and explore its economic avail. Capital Market Authority Strategic Plan 21

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23 Second Theme: Promote Investor Protection

24 Second Theme: Promote Investor Protection One of the main objectives of the CML is to protect investors from unfair and unsound practices, or practices involving fraud, deceit, cheating or manipulation. The CMA recognizes the importance of transparency and increased awareness and compliance with the CML and its Implementing Regulations in achieving that end. Under this theme, the CMA works on fulfilling a number of different strategic objectives; they involve raising the level of governance and improving capital market disclosure requirements, educating all types of investors on securities transactions, and promoting compliance with the CML and its Implementing Regulations to reduce violations in the market. Hence, we can deliver fairness, efficiency and transparency in securities transactions to protect investors. Strategic Objective (2.1): Raise Governance Level and Improve Disclosure Requirements in the Capital Market Raising the level of disclosure, facilitating the flow of material information and improving corporate governance result in enhanced transparency and reduced risks in securities transactions. To ensure the availability of necessary information that helps investors to make investment decisions, the CMA constantly seeks to evaluate disclosure requirements, adopt amendments aiming at the improvement of disclosure information quality and avail, and follow up their compliance. By implementing this objective, the CMA focuses on improving the quality and content of disclosure information of listed companies, APs and the Saudi Stock Exchange (Tadawul), as well as the disclosure information of mutual funds; enhancing the level of capital market governance, raising awareness of its importance and supporting the efforts of the Saudi Organization for Certified Public Accountants (SOCPA) in the conversion into International Financial Reporting Standards (IFRS) and carrying out quality control check of the professional practice of accounting and audit offices. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Improve Disclosure of Listed Companies The purpose of this initiative is to increase the transparency of listed companies by enhancing compliance with disclosure requirements to meet the needs of investors and facilitating access to the information that help them make investment decisions. The initiative focuses on increasing disclosure channels for investors and strengthening compliance with disclosure requirements by listed companies to regulate their business in relation to compliance; this is to prevent violations of disclosure instructions. 24 Capital Market Authority Strategic Plan

25 2.1.2 Improve Disclosure of APs Due to the importance of APs as one of the pillars of the capital market, the CMA aims to increase the quality and inclusiveness of APs business disclosure, and make their disclosures accessible to beneficiaries. Consequently, the CMA will cooperate with the APs in order to increase disclosure of material information and release it on the APs official websites. Under this initiative, the CMA aims to promote investors knowledge on providers of financial services and products, and to mitigate potential risks due to the business relation with such providers. It also intends to enhance APs governance, supplement the capital market with information that may be of interest to researchers and concerned individuals Improve Disclosure of Investment Funds One of the priorities of the CMA is to promote investor protection and provide essential information that helps investors make sound and informed investment decisions. In this initiative, the CMA will work on improving information disclosure of investment funds in general and enhancing transparency of asset valuation and related material events and changes as well as boosting disclosure of funds investments in accordance with international best practices. To achieve the main purpose of disclosure as a crucial tool to protect investors, the CMA realizes how clear and comprehensible disclosures are important to suit their needs Improve Disclosure of Saudi Stock Exchange (Tadawul) The Saudi Stock Exchange (Tadawul) plays a vital role in feeding the capital market with information that increases market transparency and efficiency. Since information is critical to raise investment awareness among investors, the CMA and Tadawul will cooperate to boost the dissemination of information related to listed companies trades and shareholdings (available online with the Securities Depository Center) as well as Tadawul s business and activities Support SOCPA Efforts in Conversion into IFRS and Improve Professional Performance Quality Control As part of the CMA s supervisory responsibility and seeking to implement best international practices in the capital market to promote investor protection, the CMA will continue to support SOCPA s efforts with regard to the conversion into IFRS and the development of professional performance quality standards of audit offices. This comes under the CMA s endeavors to enhance the integration of professional and legislative institutions related to the capital market. Capital Market Authority Strategic Plan 25

26 2.16 Increase Governance Practices at APs To instill the best international standards on corporate governance at APs, the CMA is going to review and develop governance requirements at APs. These include conflict of interest policies, fit and proper requirements for board members and senior executives, the role of the board in monitoring compliance functions, and risk management. Under this initiative, the CMA aims to increase the level of transparency and disclosure of APs, enhance the performance of their different activities and protect the interests of their clients Increase Governance Practices at Listed Companies To instill the best international standards in the domain of corporate governance at listed companies and promote sound governance practices, the CMA is reviewing and developing the Corporate Governance Regulations in line with relevant regulatory developments and international standards. This involves many aspects such as conflict of interest policies, fit and proper requirements for board members and senior executives, the role of the corporate board in monitoring compliance functions, and risk management; it also includes working with institutional investors categories that influence the optimum implementation of governance principles in companies where they have substantial shareholdings Raise Awareness of the Importance of Governance at Listed Companies The CMA will continue to develop training programs and informative materials which aim to aid board members of listed companies to perform their duties in the light of sound governance practices. Research efforts in corporate governance will also be supported, as this would contribute to developing sound practices for companies management and improving levels of compliance with corporate governance rules. The CMA aims to increase the degree of awareness of regulatory developments and international standards in corporate governance.. 26 Capital Market Authority Strategic Plan

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28 Second Theme: Promote Investor Protection Strategic Objective (2.2): Promote Investment Literacy and Awareness of Market Participants To secure a better investor protection and solid market confidence, the CMA attaches paramount importance to enhancing investment literacy and awareness of market participants such as investors, APs and listed companies. The CMA considers investors awareness and investment literacy as the first line of defense against unfair or unsound practices, and a crucial factor to understand their rights and duties, the roles of both regulators and APs, their responsibilities towards their clients, and the features of available investment products. Accordingly, the CMA is keen to enhance and increase the awareness and investment literacy of market participants by executing several initiatives that focus on escalating interaction with investors, and having educational programs for market participants. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Improve Investor Awareness Center to be an Interactive Website The CMA devotes great attention to communication and interaction with the public as this has an effective role in increasing their awareness. Due to the importance of this aspect, the CMA intends to develop the Investor Awareness Center into an interactive website. To achieve that goal, the CMA will work on improving and updating the website on a regular basis. It will also revolutionize its visual content and upload examples of virtual case studies and trial tests directed to investors, hence, creating a major reference for investor awareness and a tool to inform them about their rights Create Educational Programs for Market Participants on Investment Products and Fraudulent Practices International experiences indicate that the effectiveness of awareness and educational programs for market participants increases whenever the techniques and tools of delivering those programs vary. This is of course attributable to the participants different levels of investment backgrounds. In the light of that, the CMA will adopt various approaches and methods in educating market participants by organizing symposiums, conferences and lectures, along with the use of various electronic education means. These programs aim at raising the knowledge of market participants about the technical features and associated risks of investment products as well as wrongdoings in the capital market. 28 Capital Market Authority Strategic Plan

29 Second Theme: Promote Investor Protection Strategic Objective (2.3): Increase Compliance with the CML and Implementing Regulations through Effective Supervision and Awareness, and Adoption of Deterrent Policies The CMA exerts distinguished efforts to increase the level of compliance with the CML and its Implementing Regulations for the protection of investors and maintenance of market soundness and integrity. It concentrates its efforts on all categories of market participants, i.e. investors, listed companies and APs, to reduce the size of potential violations. Thus, the CMA has adopted initiatives to realize this objective which involve deterring violators by increasing the awareness of market participants on frequent violations, enhancing their culture of compliance, accelerating the procedures of evidence gathering and investigation in suspected cases, and developing self-monitoring systems of APs. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Develop Policies and Standards for Referring Violations of the CML and Implementing Regulations The speed of the CMA s procedures in evidence gathering and investigation into the violations of the CML and its Implementing Regulations increases the confidence of market participants in the decisions made by the CMA in this regard. To ensure efficiency and speed in handling suspected cases, as important deterrents to violators, the CMA has consistently worked on examining and applying methods and tools to avoid any obstacles and increase completion rates in the processes of investigation and evidence gathering. In a step aimed at enhancing the efficiency of the procedures of evidence gathering and investigation, the CMA will develop special policies and standards to regulate the referral of suspected cases Raise the Awareness of Market Participants with Frequent Violations The CMA recognizes the importance of raising the awareness of market participants as a key tool to reduce wrongdoings and common violations in financial markets, and increase compliance with the CML and its Implementing Regulations. The CMA intends to use different methods and channels to raise awareness about frequent violations; this involves workshops and visual releases on social media networks in addition to enabling market participants to view previous penalties on violators. Capital Market Authority Strategic Plan 29

30 2.3.3 Develop Self-Monitoring at APs As part of the APs legal liability towards the conduct of their clients, the CMA seeks to develop the capabilities of self-monitoring at APs by introducing advanced surveillance systems capable of taking supervision to a higher level to reduce violations or detect them earlier. In this context, the CMA will cooperate with Tadawul on developing surveillance system that boosts the ability of APs to detect violations. This in turn will protect investors and securities traders against illegal, misleading, deceptive, or fraudulent acts. Moreover, the CMA works on motivating self-monitoring at APs by adopting deterrent policies that declare APs violations Activate Settlement in Civil Suits The CMA depends on using settlement as another way to resolve disputes in civil suits between the APs and their clients, and listed companies and their shareholders, besides resorting to litigation proceedings with the Committee for the Resolution of Securities Disputes (CRSD). The CMA anticipates that activating settlement in such cases will deliver a number of benefits; these involve saving effort and cost on disputing parties, speeding up decision on cases, and reducing the pressure on the Committee to increase its proceedings. Having good preparation in place to do settlements and intermediary between the disputing parties contributes to the success and acceptance of settlement results. Based on this, the CMA will set up rules for settlement and strengthen the capabilities of its employees to fulfill this part. Also, the CMA will coordinate with Tadawul to establish rules, regulations and instructions necessary for settling or resolving disputes among market members, and between the members and their clients. 30 Capital Market Authority Strategic Plan

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33 Third Theme: Improve the Regulatory Environment

34 Third Theme: Improve the Regulatory Environment The CMA s top priority is to continuously improve the regulatory environment. This is driven by its function to regulate and develop the capital market into an investment-conducive environment, enhance the levels of fairness, efficiency and transparency for investor protection, and make sure that market participants understand their obligations and duties. Under this initiative, the CMA will be working on the continuous improvement and development of the regulatory environment by increasing clarity in the regulatory approach and requirements, and making efforts to avoid overlapping of jurisdictions with concerned government entities. Strategic Objective (3.1): Adopt a Disclosure-Based Regulatory Approach and Continuously Enhance Implementing Regulations The CMA believes in the importance of a clear regulatory approach which governs the capital market regulation. Based on the level of knowledge, progress and achievements made in the capital market over the past decade, the CMA seeks to adopt and apply a disclosure-based regulatory approach gradually to protect investors, increase market efficiency and adopt best international practices. This is considered a normal progression in market regulation. The CMA counts on the roles of both securities issuers and financial services providers to enable investors to know all essential information in order to assess the feasibility of investment opportunities and eventually make their decisions. On the other hand, the CMA s role lies in regulating disclosure requirements and following up compliance with the CML and its Implementing Regulations. To successfully apply the approach and enhance market participants knowledge on their obligations and duties, the CMA takes into account the importance of clearer Implementing Regulations to avoid any potential ambiguity in interpreting the regulatory provisions and increase transparency in the capital market. Initiatives: To achieve this objective, the CMA has planned the following initiatives: Enhance Alignment of Implementing Regulations, Policies and Work Procedures with the Disclosure-based Regulatory Approach The applied regulatory approach is evident in the Implementing Regulations and work procedures. As a key step towards adopting a disclosure-based regulatory approach, the CMA will conduct a comprehensive review of the Implementing Regulations and internal work policies and procedures. The review aims to ensure the harmony of the Implementing Regulations with the approach as well as their clarity and that they contain detailed disclosure requirements which contribute to higher transparency and investor protection. It will also ensure that the work procedures are efficient and aligned with these Implementing Regulations without breach of regulatory requirements. 34 Capital Market Authority Strategic Plan