The Law of the Capital Market Authority No. 7 of 2010 aims at organizing the activities of the securities market in a fair, viable and transparent manner, educating the public about the activities of the securities, the benefits, risks and undertakings related to the investment of the securities. The main difference between Kuwait Stock Exchange and Capital Markets Authority Law is that there was no special prosecution prescribed in the provisions of the Kuwait Stock Exchange while in the new law there is prosecution for violations. Surely, a policy of total disclosure ensures justice and transparency thereby preventing conflict of interest and exploitation of confidential information. Thus abidance of the local laws and regulations of the country is the paramount aim.

Understanding its responsibility towards the national economy the Capital Market Authority specifies in its Law the commitment of investment funds operating in securities market to adjust their positions so as not to have more than 10% of its securities from a single source and not to invest more than 10% of it’s investment in a single source. However, Article 161 of the bylaws state that the investment portfolios authorized by law number 31/1990 shall be regarded as authorized under provisions of this law and its bylaws but it should reposition itself in line with provisions of the present law and its bylaws within six months of publishing the bylaws. This has necessitated the existing investment funds to adjust their positions within a maximum period of (6) six months from the date of publication of the related regulations. This led to a heated debate between lawyers about the legality of extending this deadline for an additional six months. Some hold the view that the decision to extend the deadline would be in conflict with the provisions of Article 161 of the Code of the Capital Market Authority. They point out that the provision is clear and once the legislature granted a time limit it may not be extended unless it is through another piece of legislation as there is no law which gives anyone the right to extent the prescribed time limit. Therefore, the only way out – according to this view – is to amend Article161.

Others consider that it is valid to extent the time limit and justify the validity of the extension. In their opinion the provisions of Article 161 gives room for extension of the time limit. They argue that the law itself calls for adjustment of the investment positions according to its provisions and therefore its implementing regulations should have the authority to extend the deadline and without the need to amend the law altogether. In other words the implementation is vested with the ‘powers of execution’ and therefore the deadline can be extended.

I am of the opinion that both the viewpoints has its own merits and demerits, but I tend to favor the second opinion i.e., availing the possibility of extending the deadline for investment funds taking into consideration the market conditions and the practicality of the implementation. The inadequacy of the time limit prescribed by Article 161 of the law of the Capital Market Authority No. 2010/72, is undisputable. In such a situation, the regulations should complement the law and its scope. Detailed improvements in the procedures are necessary to put the law into practice and then only proper law enforcement would be made possible. The regulatory action is the prerogative of the Board of Commissioners and particularly it hauled certain regulatory decisions on the Law of the Capital Market Authority. The resolution by itself does not carry any abuse or infringement of the law, but is based on how the Board of Commissioners execute the powers granted to them, including the issuance of instructions necessary to organize work according to present economic conditions and market requirements. If that is done properly the new capital markets authority law will ensure the stability of the national economy especially at a time when the economy is sluggish.

According to a detailed 2004 assessment of securities supervision in Kuwait by the International Monetary Fund (IMF) conducted in the context of the Financial Sector Assessment Program (FSAP) in the area of issuer regulation, principles relevant to corporate governance have not been fully addressed and there is need to strengthen minority shareholders’ protection. Moreover, there should be a panel of qualified auditors to ensure the quality of the auditing, particularly in the listed companies.

The proper implementation of the Law of Capital Markets Authority could help to improve matters in the commercial sector, where there is no sufficient awareness and understanding of current standards of disclosure, governance, the liability of the Board of Directors, and the role of auditors. The Kuwaiti securities market could be more effectively regulated by the Capital Markets Authority which would provide a more comprehensive legal framework for the country. A distinct, single, and independent regulatory body for the entire capital market in the country which can effectively render risk control/management over the entire funds would be a welcome move. The laws and regulations of the country would be effectively implemented if the powers and independence of the Kuwait Capital Markets Authority is properly executed. This will ensure the protection of minority shareholders and will force the listed companies to implement principles of corporate governance, adhering to the principles of law.

Posted on 22/12/2015  by Prepared by Abdulrazzaq Abdullah, Managing Partner ARALF law firm,  Contact Tel: 22449909 or