CMA Calls for Public Consultation on the Draft to Enhance Governance of Special Purpose Entities and Facilitate Their Procedures

The Capital Market Authority (CMA) invited all interested parties and participants in the capital market to provide their views on the Draft to Enhance the Governance of Special Purpose Entities and Facilitate Their Procedures. The public consultation period will remain open for 30 calendar days, ending on 01/11/1446H, corresponding to April 29, 2025.

The Draft aims to enhance the attractiveness of Special Purpose Entities (SPEs) as legal entities for issuing debt instruments and investment units by improving their governance and simplifying their procedures. This supports the CMA’s strategic goals of developing the sukuk and debt instruments market and enabling the growth of the asset management industry. It will also help deepen the sukuk and debt instruments market, diversify issuances by expanding the base of debt issuers through SPEs, and ultimately increase market liquidity and create new investment opportunities.

Key proposed changes include expanding the range of eligible issuers, provided this does not conflict with applicable laws and regulations governing the entity’s activity. The amendments allow SPEs to offer debt instruments through exempt offerings, in addition to public and private offerings.

Furthermore, the amendments enable SPEs to engage in securitization activities as part of efforts to broaden the range of issuers.

The proposed amendment also aims to simplify procedures for SPEs and clarify the responsibilities of directors and the fund manager (for funds that take the form of a Special Purpose Entity) in the entity’s By-Laws.

Additionally, the amendments aim to enhance governance by requiring the trustee to be a legal entity, improving the provisions for the trustee’s removal, ensuring the independence of board members from the sponsor and originator, and developing procedures for the dissolution of the entity.

A Special Purpose Entity is defined as an entity established and licensed by the CMA under the regulations governing SPEs for issuing debt instruments or investment units. It has independent financial and legal personality and ceases to exist upon the fulfillment of the purpose for which it was established, in accordance with rules issued by the CMA.

The capital market has witnessed a significant increase in the number of Special Purpose Entities, with a total of 464 entities established between 2018 and 2023. This number has more than doubled, reaching 945 active entities by the end of the fourth quarter of 2024.

The CMA emphasized that feedback from individuals, government entities, private sector organizations, and regulated entities will be carefully considered when finalizing the Draft, as part of efforts to improve and develop the regulatory environment.