Foreign strategic investment in listed shares: The Capital Market Authority (CMA) issued new Instructions for Foreign Strategic Investors’ Ownership in Listed Companies which allow Foreign Strategic Investors (FSIs) to own a controlling interest in Saudi Arabian companies listed on the Saudi Stock Exchange (Tadawul). The usual rules on foreign investment in Saudi listed shares do not apply to FSIs. These rules are set out in the CMA’s Rules for Qualified Foreign Financial Institutions Investment in Listed Securities (QFI Rules) (read more here and here), which include a restriction on foreign ownership. The FSI’s investment must be intended to help promote the financial or operational performance of the company. The FSI must also meet certain other conditions, including that it must be established or licensed in a country that applies regulatory and supervisory measures similar to those applied by the CMA or that are accepted by it. FSIs are also restricted from selling their shares for a two-year period after they acquire the shares. A foreign investor cannot be an FSI and a QFI owning shares in the same issuer. This development is one of a number of recent changes in ongoing efforts to open up Saudi Arabia’s markets to international investors.
Tadawul to allow foreign company listings for the first time: Foreign issuers will be able to list their shares on the Tadawul, following amendments to the CMA’s Rules on the Offer of Securities and Continuing Obligations. Foreign issuers must comply with the Kingdom’s listing rules. There is no restriction on foreign ownership of shares of a foreign issuer that are listed on the Tadawul (in contrast to restrictions for local issuers set out in the QFI Rules). The amended rules also include changes intended to develop the Parallel Market (Nomu). Complementing this development, the Tadawul signed an agreement with the Abu Dhabi Securities Exchange (ADX) earlier this year to encourage dual listings in Saudi Arabia and Abu Dhabi.
Emerging Market status now effective on MSCI Indices: Saudi Arabia was included as an Emerging Market on the MSCI Indices, the global indices tracked by investors. This follows Saudi Arabia’s reclassification as an Emerging Market, upgraded from Frontier Market status, by the MSCI in its annual review in 2018. The reclassification is a result of a series of reforms designed to modernise the stock market and encourage foreign investment in Saudi Arabia.
New E-commerce Law: A new E-commerce Law (Royal Decree No. M/126 dated 07/11/1440H, 10 July 2019) protects consumers by regulating e-commerce service providers located in Saudi Arabia and providers located outside of Saudi Arabia who offer goods and services to customers in the Kingdom.
Modernised competition regime: Anti-competitive agreements, economic concentrations and abuse of a dominant position are regulated by a new Competition Law (Royal Decree No. M/75 dated 29/6/ 1440H, 6 March 2019) and related regulations that came into force in September 2019. Any investor considering investing in a business in Saudi Arabia, such as by way of joint venture or acquisition of shares in a company, will need to seek advice as to whether competition clearance may be required. Where the transaction satisfies the definition of an “economic concentration”, it may be necessary to file an application with the General Authority for Competition (GAC) to have the transaction pre-approved within 90 days (increased from 60 days) prior to the completion date. A filing is required if the total annual turnover of the parties involved exceeds SAR 100 million (US$ 27 million). The regime applies to activities in Saudi Arabia and may also have extra-territorial effect where competition in the Saudi market is affected. There are exceptions to the Competition Law (such as for government entities and certain state-owned companies) and exemptions are possible, for example, if the practice will enhance the market and is beneficial for consumers. Violations are punishable by fine. Recent experience indicates that there is increased scrutiny by the GAC of transactions with potential competition issues.
Foreign consultants and expatriate workers
Rules on Saudi government engaging foreign consultants: Saudi government engagements with foreign consultants are now restricted to limited circumstances where the relevant expertise cannot be provided locally in accordance with Royal Order No. 624 dated 5/1/1441H, 2 September 2019. The general position is that entry by government ministries and agencies into agreements for consultancy services should be limited to Saudi nationals and Saudi consulting establishments and companies.
Expatriate residency permits enhanced: The Saudi Arabian Government’s new Privileged Iqama Law, enacted by Royal Decree No. M/106 dated 10/9/1440H, allows a non-Saudi national to apply for a residency permit which gives the holder enhanced rights and benefits either on a permanent basis or for a one-year renewable period.
New Franchise Law
New Franchise Law: A new Franchise Law (Royal Decree No. M/22 dated 09/02/1441H, 8 October 2019) was issued on 25 October 2019 and will come into effect, accompanied by implementing regulations, on 22 April 2020. The new law is intended to encourage franchise activities in Saudi Arabia by establishing a regulatory framework to govern the relationship between a franchisor and franchisee. It sets out the obligations, required to be carried out in good faith, of each of the franchisee and franchisor under a franchise agreement. The Franchise Law also sets out the circumstances in which the franchise agreement may be terminated for cause prior to its expiry. Any agreement which purports to waive any of the franchisor’s rights under the Franchise Law will be considered void unless the agreement is part of a final settlement agreement with the franchisor or is authorised by the implementing regulations. The Franchise Law also imposes penalties (not exceeding SAR 500,000) for violations.
Saudi Arabia and the UAE collaborate on financial intelligence: In August, the Saudi Arabia Financial Intelligence Unit and the UAE Financial Intelligence Unit signed a Memorandum of Understanding to work closely together to combat money laundering and financial terrorism. The strategic partnership is supported by robust anti-money laundering and terrorism offences legislation in both jurisdictions.
Fintech ecosystem developments: The Saudi Arabian Monetary Authority (SAMA) issued several trading licences this year to financial institutions and Fintech companies operating banking and digital payments activities. Some of the newly licensed companies have been accepted into the SAMA’s Regulatory Sandbox, launched in February, to test their products before launch. To date, the SAMA has issued licences to more than 20 Fintech companies, mostly operating in the digital payments and debt crowdfunding space. Businesses operating in the capital markets space need a licence from the CMA. Companies can apply to the CMA for a Financial Technology Experimental Permit in order to test their products, which must be related to securities activities, in the FinTech Lab (read more…). So far, there are three FinTech ExPermit Companies (two approved in 2018 and one in 2019), all of which operate in the equity crowdfunding space. This follows the launch in 2018 of Fintech Saudi, an initiative to develop the Kingdom as a hub for financial technology. The development of the Fintech ecosystem is a significant component of The Financial Sector Development Program (FSDP) and the Vision 2030.
Procurement: A new Government Tenders and Procurement Law applies to all Saudi Arabian government projects with effect from November. Cabinet Resolution No. 649 dated 1440H (2019), Promulgating the Government Tender and Procurement Law Royal Decree No. M/128 dated 1440H, 16 July 2019 provides for more centralised tendering and procurement processes (including via an electronic portal) and contracting processes (for example, by using standard framework agreements). Other key provisions include new termination powers for the government, an increase in the maximum delay penalties to 20 per cent (up from 10 per cent) and the ability to refer disputes to arbitration (if approved by the Ministry of Finance). Alongside Vision 2030 initiatives, the new framework will support infrastructure development in the Kingdom.