New investment account regulations and a ban on sole proprietorships
The Saudi Capital Market Authority (CMA) has issued a set of updated regulations governing the opening of investment accounts with financial market institutions, in a move aimed at enhancing governance and transparency. The new regulations explicitly prohibit individual investors from opening investment accounts, with the exception of licensed charitable organizations or those owned by endowments (waqf), to ensure the separation of individuals' financial liabilities from commercial activities.
A regulatory framework that keeps pace with the development of the financial market
These amendments are part of the Capital Market Authority's (CMA) ongoing efforts to develop the legislative framework for the Saudi Stock Exchange (Tadawul), in line with the objectives of Vision 2030 and the Financial Sector Development Program. Since the Saudi market's inclusion in emerging market indices, the CMA has worked to address regulatory gaps and strengthen "Know Your Customer" (KYC) procedures.
This step is an extension of national efforts to combat financial crimes, as the new regulations complement the anti-money laundering law and the law against terrorism financing. This stringent regulatory framework aims to prevent any exploitation of investment accounts for illicit activities and ensure that invested funds have clear and documented sources, thereby strengthening the integrity of the financial system as a whole.
The implications of the decision on the investment environment
regulations governing investment accounts have significant implications on several levels:
- Locally: The decision contributes to regulating the relationship between the investor and financial market institutions, and reduces the legal risks associated with the overlap of personal and commercial funds in sole proprietorships.
- Regionally and internationally, this measure enhances the Kingdom's ranking in international financial compliance and transparency indices. A clear and robust regulatory environment attracts foreign institutional investments seeking organized markets protected from systemic risks, thus solidifying Saudi Arabia's position as a leading financial center in the Middle East.
Account opening procedures for individuals and residents
The new regulations detail the requirements for opening accounts for individuals. Saudi citizens are required to present a valid national identity card, while citizens of other Gulf Cooperation Council (GCC) countries must present either a passport or national identity card. For residents within the Kingdom, the authority requires a valid residency permit, and verification of the data of holders of the Premium Residency (five-year) is necessary.
The regulations also applied to members of diplomatic missions, requiring a letter of introduction from the embassy and a diplomatic card. As for non-resident foreigners, the instructions allowed them to invest in permitted securities provided they presented a valid passport and its authenticity was verified.
Special regulations for minors and those lacking legal capacity
The instructions paid special attention to those requiring legal guardianship, regulating the opening of investment accounts for minors (under 18 years of age) and those lacking legal capacity. The account is opened in the name of the minor or legally incapacitated person, while the guardian or legal custodian is responsible for its operation and management, and is obligated to provide all relevant supporting documents, guardianship deeds, or court rulings.
The instructions also included provisions for people who are unable to write or sign (such as the blind or illiterate), where a thumbprint or personal seal was allowed as an alternative to a signature, with the possibility of using a personal identifier or having a financial institution employee explain all the terms and conditions to ensure the customer is fully aware of his obligations.
