The International Capital Markets Review: Kuwait


A seismic shift in the regulation of capital market activities in Kuwait took place on 21 February 2010, the date the National Assembly (the Kuwaiti parliament) enacted the Capital Markets Authority Law (the CMA Law).2 The CMA Law created a new and independent body, the Capital Markets Authority (CMA), and provided the basis for the CMA's establishment, aims and goals, in addition to a new legal framework to fill a lacuna in the law.

The CMA Law is considered by prominent experts and practitioners as the most complex legislation enacted in the recent history of Kuwait. The primitive infrastructure of capital market regulation prior to the CMA,3 coupled with its hasty, unplanned enactment, led to inevitable obstacles, preventing a smooth transition into the new regulatory framework and resulting in its rigid impractical application. The complexity stems from the fact that the CMA Law innervates and complements public and private laws, such as the Civil Law, the State Audit Bureau Law, the Penal Law, the Companies Law and the Central Bank's Law, as well as their respective by-laws and regulations.

On 10 May 2015, Law No. 22 of 2015 (the CMA Law Amendment) was enacted, which contains amendments to 64 articles out of the 165 articles that make up the CMA Law. The CMA Law Amendment came into force on 10 November 2015. On 9 November 2015, the CMA issued its improved by-laws, which were a polar shift from their predecessors and included substantial changes to the regulatory regime and processes within the CMA to bring it into line with International Organization of Securities Commission (IOSCO) standards. In May 2017, IOSCO rendered its decision to grant the CMA full member status.

Nearly a decade after its inception, and with a tumultuous period following its inauguration, the CMA and market participants appear to have reached a stable level in terms of establishing conventions, precedents and acceptable practice. The CMA by-laws constitute clear and easy-to-navigate regulations in the form of an organised unified code, which largely includes all relevant legislation.

Since May 2017, the CMA, the Kuwait Clearing Company KSCC (KCC) and the only stock exchange in the country, the Boursa Kuwait, have embarked on a multi-phase exercise to develop the market. As a by-product of this focused exercise, FTSE Russell, MSCI and S&P Dow Jones have all decided to upgrade the Boursa Kuwait and classify it as an emerging market.

i Structure of the law

The CMA Law consists of 13 chapters. It starts by outlining the organisational structures and regulatory frameworks of the CMA, securities exchanges and clearing agencies. In Chapters 5–9, it regulates organised securities activities, licensing of parties engaging in capital market activities, acquisitions and minority rights, and collective investment schemes, and the formalities and procedures related thereto. The CMA Law also provides extensive guidance on the conditions and requirements for disclosures and market announcements. The legislation concludes with general and transitional rules.4

ii Structure of the courts

The CMA Law provides language for the creation of specialist courts, which have jurisdiction over all matters subject to the CMA Law. Article 108 stipulates that the court of first instance will be 'the Capital Markets Court, the location of which shall be decided by virtue of a decree from the Minister of Justice with the approval of the Supreme Judiciary Council'. The Capital Markets Court comprises two circuits: a penal circuit that has jurisdiction over all penal cases arising from matters subject to the CMA Law; and a circuit that oversees civil, commercial and administrative matters subject to the CMA Law.

In addition, Article 112 of the CMA Law stipulates that penal and non-penal circuits at the courts of appeal will have jurisdiction over appeals arising from the court of first instance. The highest courts of appeal with respect to matters subject to the CMA Law are the courts of appeal, and the Court of Cassation, normally the highest court of appeal, has no jurisdiction. The purpose of this approach is thought to be to streamline the process and reach final judgments in an expeditious manner.

The year in review

i Debt and equity offerings

Compared to its Gulf Cooperation Council (GCC) peers, the Kuwaiti capital market has been one of the better performers.5 The news about the market review and upgrade of Kuwait as an emerging market on the FTSE Russell, MSCI and S&P Dow Jones indices is expected to significantly increase the allocation of foreign capital to the country.

In absolute terms, equity offerings have been on the shy side, with no significant offerings in the past 10 years. The few offerings made were characteristically public shareholding companies in which the state is the main investor.6 As a step in the right direction, a couple of high-profile private sector initial public offerings (IPOs) were announced and completed in 2015 and more recently in 2018 in the services and consumer products sectors.7

Conversely, the arena of debt capital markets issuances originating from Kuwaiti entities has witnessed a healthy resurgence. Kuwait's debt capital markets offerings in 2016, 2017, 2018 and the first half of 2019 can be described as relatively busy. This was spearheaded by the state's establishment of an unlimited global medium-term note programme and an inaugural dual-tranche, US dollar-denominated international debt capital markets issuance thereunder of US$8 billion of notes in aggregate by the state, acting through the Ministry of Finance and represented by the Kuwait Investment Authority. Furthermore, almost all Kuwaiti banks have embarked on debt capital market programmes and issued Basel III-compliant bonds and sukuk to strengthen their capital base.

In addition, the foregoing is seen as a direct result of the CMA's efforts to streamline its regulations and internal procedures for debt and equity offerings under the CMA rules. This is especially topical in the face of challenging market conditions, regional political instability and low oil prices. This year, it is envisaged that more corporate issuers will tap the capital markets for funding and the mix would include both publicly traded and private (i.e., closed shareholding) companies.

ii CMA regulations

In addition to the CMA Law Amendment, the CMA has completely overhauled its executive by-laws through the adoption of a unified code format (often referred to as the CMA Handbook). The CMA Handbook is well organised, logically structured and contains rules, procedural steps and template forms spread over 16 modules, each tasked with regulating a specific section as follows:

  1. a glossary of defined terms;
  2. the CMA;
  3. enforcement of the law;
  4. exchanges and clearing agencies;
  5. capital markets activities and registered persons;
  6. internal policies and procedures for licensed persons;
  7. clients' funds and assets;
  8. conduct of business;
  9. mergers and acquisitions;
  10. disclosures and transparency;
  11. dealing in securities;
  12. listing rules;
  13. collective investment schemes;
  14. market practices;
  15. corporate governance; and
  16. anti-terrorism and anti-money laundering.

The Market Development Project

Since May 2017, the CMA has embarked on a focused regulatory reform exercise with the aim of 'diversification of Investment products and Instruments' and of developing the market: the Market Development Project (MDP). The MDP has introduced new market segments and circuit breakers and has enhanced the overall process of holding, transferring, settling and exercising rights over securities. In particular, the rules relating to listing securities were streamlined in favour of a more dynamic market. In April 2018, the Boursa Kuwait issued a comprehensive new Rulebook (which was significantly supplemented and updated in April 2019), constituting substantially the regime governing all the Boursa Kuwait's operations.

The Rule Book is organised into 11 chapters as follows:

  1. general provisions and glossary of terms;
  2. objective and obligations of the exchange;
  3. exchange management;
  4. registered persons in the exchange and service providers;
  5. general duties of integrity, fair dealing and due care;
  6. disaster recovery rules;
  7. listing rules;
  8. market segmentation and index rules;
  9. system trading rules;
  10. cases exempt from trading systems; and
  11. exchange members disciplinary proceedings.

As part of the third phase of the MDP, the Boursa Kuwait introduced specific initiatives to improve the execution of exempt and off-market trades together with a trading platform for mutual funds and real estate investment trusts. A more advanced stage is planned to introduce, among other things, a central counterparty (CCP), repo regulations and processes, and instructions on the division of client accounts into sub-accounts.8

The CMA Law amendment

It appears that the overall aim of amending the CMA Law is to confer greater rule-making powers to the CMA. The CMA Law Amendment delegates several matters that used to be rigidly regulated by the executive by-laws and grants the CMA the authority to make further rules and exceptions.

The CMA Law Amendment has amended many of the definitions in the CMA Law and included new ones. For example, one of the most important definitions that were added was the definition of dealing in securities, which was drafted broadly. Technical errors were also remedied: the definition of private placement used to be limited to 'closed shareholding companies, or in the event of increasing the capital of an existing company'. This limitation has now been omitted.

One of the major changes was exempting the rules of transfer of ownership and dealing in securities from the provisions of Articles 508, 992 and 1053 of the Civil Code and Articles 231, 232, 233 and 237 of the Commercial Code.9 These articles regulate the procedures related to public policy with respect to the sale and ownership of encumbered assets. In the fast-moving environment of securities markets, the procedures in the aforementioned articles in the Civil and Commercial Codes, which require, inter alia, the involvement of the courts in granting a sale or ownership order, are outdated and do not provide equitable outcomes.10

The CMA Law Amendment aims to bring the CMA Law in line with the many subsequent pieces of legislation that were enacted by the Kuwaiti parliament, such as the new Companies Law in 2012, the Promotion of Investment Law in 2014 and the Public Private Partnership Law in 2014. Finally, the CMA Law Amendment creates an express tax exemption in Article 150 on proceeds arising from securities, including but not limited to, bonds, sukuk and all other similar securities, regardless of the issuer.

Preferred shares

The CMA by-laws in Module 11 – Chapter 13 contain provisions regulating preferred shares, making Kuwait the first GCC country to regulate preferred shares, which are defined as 'shares that are granted specific privileges with respect to voting, profits, liquidation proceeds or any other rights provided that the shares of the same type shall be equal in terms of the rights, privileges and restrictions'.11 Module 11 – Chapter 13 deals with regulating the issuance, trading, conversion and redemption of preferred shares. In addition, it regulates the rights of the holders of such shares and their ongoing obligations and disclosure requirements.

Module 11 – Chapter 13 also lists the minimum eligibility requirements for issuances and issuers, which require, inter alia, that all subscribed shares of the issuer be fully paid up and that the aggregate of the issued capital and the value of the new issuance do not exceed the authorised share capital of the issuer. Detailed regulations are included with respect to the offering documents and method of offering. Pursuant to Module 11 – Chapter 13, preferred shares may only be issued following the approval of the extraordinary general meeting of the issuer and the approval must expressly mention the type of rights attached to the preferred shares. Module 11 – Chapter 13 restricts the offering method for offering preferred shares to private placements and only to professional clients (as defined in the CMA by-laws). However, by way of discretionary exceptions, public offerings are permitted provided prior approval of the issuance and prospectus is obtained from the CMA.

Regulation of mergers and acquisitions

The CMA by-laws dedicate a standalone module within the CMA Handbook to regulate mergers and acquisitions. The regulation of mergers and acquisitions was previously spread in fragmented fashion over various sources that were often criticised by the market as rigid, not clearly outlined, and containing ambiguous procedures. Module 9 introduced a consolidated regulatory framework with the aim of eliminating ambiguity and introducing clear procedures. In fact, Module 9 contains appendices that have clear steps for each type of merger and acquisition contemplated by the by-laws, such as mergers in general, voluntary tender offers, non-cash voluntary tender offers, competitive (interloping) offers and mandatory tender offers. In an interesting and unprecedented regulatory format, Module 9 contains guidance flowcharts to assist investors in calculating their indirect shareholding in a publicly listed company. The foregoing is crucial in the context of events triggering mandatory tender offers, which are subject to a rule mandating that 'a Person who acquires, directly or indirectly, more than 30 per cent of the Securities admitted to trading of a listed shareholding company shall within thirty days from the date of acquisition submit an offer to purchase all the remaining shares traded in the Exchange'.

The CMA by-laws also tackle criticisms of the previous mergers and acquisitions regulatory framework in that they create exemptions to the aforementioned mandatory tender offer rules. Some of the exemptions are more fluid than others. For example, the CMA has the discretion to exempt an investor from launching a mandatory tender offer citing public policy or public interest reasons. Other exemptions include, inter alia, arriving at a shareholding in excess of 30 per cent owing to debt restructuring, or a capital increase (where other shareholders refrain from participating in a manner commensurate with their existing pre-increase shareholding).

In the same vein, Module 9 has also revamped the rules regarding the allowable trading percentages of parties controlling listed companies (otherwise known in the market as 'creeping rules') by increasing their flexibility. The creeping rules are applicable to persons (natural or otherwise) categorised as controlling parties of publicly traded companies. Therefore, it is applicable to persons who either previously executed an acquisition under the CMA rules, persons who obtained control prior to the promulgation of the CMA Law or persons exempt from mandatory tender offers. As such, Module 9 is applicable to all shareholdings exceeding 30 per cent of voting rights in a publicly traded company. The ordinance provides a cap on the permitted purchase and sale of shares. While the previous rules set a 2 per cent limit on the increase or decrease of the annual shareholding of a controlling party in the event that the shareholding is in excess of 30 per cent but less than 50 per cent, under the new rules the 2 per cent movement limit applies on a semi-annual basis, rather than an annual basis.

Similarly, Module 9 reinstitutes the rules for shareholdings equal to or greater than 50 per cent held by controlling parties by allowing creeping of 5 per cent semi-annually under the new rules, rather than annually, as it was under the old rules. It is crucial to point out that in the event a controlling party purchases shares in excess of the allowable percentages, it must submit a mandatory tender offer. However, a controlling party who has submitted a mandatory or voluntary tender offer would not be subject to the creeping rules and may increase their shareholding in any percentage.

Corporate governance

The first iteration of the Corporate Governance Rules (CGRs) issued by the CMA by virtue of Resolution No. 25 of 2013 on 27 June 2013 was not received well by the market. This was due in part to the CMA's heavy-handed approach in its enforcement efforts and the markets' lack of awareness of the CGRs. In response to the CMA's approach, the market (led principally by the Chamber of Commerce and with the participation of many other market participants, such as the Union of Investment Companies) organised a campaign to pressure the CMA to adopt a more lenient regime taking into consideration the peculiarities of the Kuwaiti market in addition to approaching the rules from the perspective of an enlightened-investor model.

Responding to the market's backlash, the CMA decided to delay the enforcement of the CGRs from 31 December 2014 to 30 June 2016.12 At that time, the CMA has already publicly declared its intention to overhaul its regulatory framework. As such, on 30 June 2015, Resolution No. 25 of 2013 was expressly repealed by the new CGRs issued by Resolution No. 48 of 2015. When the CMA by-laws were issued in November 2015, the new CGRs were included as part of the CMA Handbook, housed in the standalone Module 15.

The new CGRs came into force on 30 June 2016. With the exception of some mandatory rules, the new CGRs adopt substantially comply or explain regulatory principles. To make compliance easier, the CMA has introduced an online portal to streamline the reporting obligations of entities subject to the CGRs.

Dealing in securities

In comparison with the old framework, the CMA by-laws consolidate substantially all the rules related to the issuance, offering and subscription of securities in Module 9. The basic premise of the rules in Module 9 of the CMA Handbook revolves around outlining the internal and external approvals required from an issuer of securities together with the standards required in offering documents. One of the highlights of Module 9 is the introduction of a chapter on the establishment of special purpose companies to act as issuers, in addition to the introduction of the concept of financial trusts for the purpose of the structuring of sukuk.

As a general rule under the CMA by-laws, all securities' issuances, whether on a public or private placement basis, require the following from the CMA as a condition precedent: an issuance approval and a prospectus approval.13

In contrast with other regional securities frameworks, there are very few exemptions14 under the CMA by-laws and the CMA appears to adopt an active regulatory approach. The CMA appears to aim to regulate foreign15 and guaranteed issuances insofar as the obligor or issuer is in Kuwait by introducing the same regulatory burdens on direct and indirect issuances by a Kuwaiti obligor.

iii Cases and dispute settlement

Kuwait does not adhere to the doctrine of binding precedents and the CMA Law, being only seven years old, has yet to establish accepted legal principles, as is the case with more developed areas of the law. Kuwait does not report the majority of its cases and there is no publicly available database that can be consulted to ascertain the latest decisions in a given area of the law.16

For the purpose of expeditious resolution and settlements of disputes, the CMA, as mandated by the CMA Law, has formed the Complaints and Grievances Committee (CGC), which is concerned with receiving and processing complaints against persons subject to the CMA Law, and with grievances seeking to appeal decisions by the CMA. The CGC has the right to decide, reserve the matters it reviews or refer them to the Disciplinary Council within the CMA.17

The Disciplinary Council, which is presided over by a member of the judiciary, is tasked with hearing grievances referred from the CGC and has the power, inter alia, to reverse the CGC's decisions. Furthermore, the CMA by-laws allow the CMA to settle amicably cases for which the courts have yet to issue a ruling.

iv Relevant tax and insolvency law


Kuwait has a very simple and clear tax regime, which is not as convoluted as those in many other jurisdictions that are more dependent on the taxpayer for purposes such as funding national programmes and balancing budgets. Kuwait has a tax department at the Ministry of Finance called the Department of Income Tax, which oversees all matters relating to taxation. As a general rule, taxation in Kuwait is always imposed on net profits (e.g., there is no tax imposed on capital gains or inheritance). However, the Kuwaiti tax regulators have been criticised for their inconsistent application of the tax laws and regulations. Furthermore, while Kuwait has a wide network of double taxation treaties, the implementation of those treaties by the Kuwaiti courts requires more development.

Income tax

The most substantial applicable tax is corporate income tax, regulated by Decree No. 3 of 1955 (as amended by Law No. 2 of 2008) (the Income Tax Law). The Income Tax Law stipulates that all corporate bodies operating in Kuwait, notwithstanding their form (whether shareholding (a 'Kuwait shareholding company', or KSC) or with limited liability (a 'with limited liability' company, or WLL) compared with other tax laws mentioned below) are subject to a 15 per cent net income tax. Income tax is applied on earnings arising from activities such as profits realised on any contract partially or fully executed in Kuwait, commissions from commercial representation or intermediary agreements, provision of services, or commercial or industrial activities. Income tax is calculated after deducting certain expenses such as depreciation, wages, salaries, employees' end-of-service indemnities and head office expenses, in accordance with the specifications of the applicable regulations.

Returns realised as a result of deals on the Boursa Kuwait, however, either directly or indirectly, through portfolios or investment funds, are exempt from income tax. In fact, pursuant to the CMA Law Amendment, this exemption was further expanded to returns arising from any securities.18 Pursuant to the Income Tax Law, all ministries, authorities, public bodies, companies, societies, individual firms, any natural person and others as specified by the executive rules and regulations may retain 5 per cent of the contract price or each payment made to parties with whom they have entered into contracts, agreements or transactions. Non-adherence to this obligation by the parties concerned will make them liable for the tax not paid by the company subject to the Income Tax Law. Finally, although in terms of its applicability the Income Tax Law does not differentiate between foreign and local persons, its current method of enforcement applies only to foreign corporate persons and equity in Kuwaiti companies; under the Income Tax Law, GCC nationals are not considered to be foreign persons.

National labour support tax

Law No. 19 of 2000 concerning the support and encouragement of Kuwaitis to work in the private sector creates a national labour support tax (NLST). The NLST is applied on companies listed in the Kuwait Stock Exchange (KSE) and imposes a 2.5 per cent tax on their annual net profits. The purpose of this tax is to fund national programmes to support the part of the Kuwaiti workforce that opts to work for the private sector.

Zakat tax

The zakat tax imposes an obligation to pay 1 per cent of the annual net profit generated by any Kuwaiti shareholding company, whether public, closed, listed or non-listed (i.e., WLLs are not subject to zakat tax).19 The Zakat Tax Law exempts certain shareholding companies from the payment of the zakat tax, such as companies wholly owned by the state and companies that are subject to the Income Tax Law.

Contribution to the Kuwait Foundation for the Advancement of Science

Kuwaiti shareholding companies (closed or publicly traded) contribute 1 per cent of their annual net profits to the Kuwait Foundation for the Advancement of Science (KFAS). This contribution is the main source of funding of the KFAS. It is debatable whether this contribution constitutes a tax duly levied by Kuwait but, in practice, most companies comply with this contribution.20

Insolvency laws

The Kuwait insolvency and bankruptcy regime is mainly contained in Decree Law No. 68 of 1980 promulgating the Commercial Code. It deals with the topic as a whole and has a few special rules dealing with the bankruptcy of companies (in Articles 670–684); however, given the current commercial climate, the law has been subject to severe criticism and is considered to hamper progress as it is still based on the old Egyptian Commercial Code and has not been updated. Bankruptcies therefore were seldom declared previously in Kuwait with respect to big companies and the law in its current form overlaps very little with capital market activities.

However, in response to the global financial crisis, Kuwait promulgated Decree Law No. 2 of 2009 (the Financial Stability Law). The Financial Stability Law lists the conditions under which, if satisfied, the state will guarantee the decline in the 'balances of the financial investments portfolio and the balances of the real estate investment portfolio, outstanding in the banks records as at 31 December 2008'.21 The Financial Stability Law also created a new circuit at the courts of appeal to oversee requests for the restructuring of companies and it states that such requests must be met on an urgent basis. If a company makes a request pursuant to the Financial Stability Law and the judge who presides over the circuit has registered his or her approval thereon, the company will be temporarily protected from all judicial and enforcement proceedings in respect of its obligations.

This temporary period is valid until the court approves the restructuring plan of the company or rejects the request for restructuring. Some companies have made requests without merit just to be covered by the legal protection period (which, because of the slow nature of the judicial process, may last longer than was intended according to the provisions of the law);22 however, very few companies genuinely in this situation have chosen to benefit from this law as a result of market-specific characteristics and unfavourable local attitudes towards the notion of bankruptcy.

This, in addition to the gap between local and international standards, has prompted the World Bank to take part in a project launched in March 2014 to work directly with the government. The project aims to ameliorate the main issues concerning Kuwait's insolvency law and the frameworks regarding debtor and creditor matters. The collaboration intends to provide support on a new legal framework for enterprise bankruptcy and streamlining judicial approvals for 'distressed debt workout plans' in addition to the creation of a specialist commercial court run by a commercially savvy and trained judiciary, which is something the country lacks.23 One collaboration has already been announced and the Ministry of Commerce and Industry has published in various newspapers a draft of the new Insolvency Law, which contains provisions on restructuring companies, the appointment of receivers and the suspension of insolvency procedures. However, at the time of writing, the draft Insolvency Law has yet to be debated in the Kuwaiti parliament to become law.

v Role of exchanges, CCPs and rating agencies

Prior to the enactment of the CMA Law, the Boursa Kuwait, by virtue of the Amiri Decree issued on 14 August 1983, was created and granted independent legal personality. It was also entrusted with regulatory securities activities through the KSE Executive Committee (KSEC). The KSEC issued all the rules and regulations regulating securities' activities, but following the enactment of the CMA Law, the Boursa Kuwait came under the CMA's oversight, rolling back its authority to regulate.

On 27 April 2014,24 and in accordance with the CMA Law, a public shareholding company, the Boursa Kuwait Company KSC, was established in an effort to privatise the stock exchange. In 2019, following a public auction, a consortium consisting of Athens Stock Exchange,25 Arzan Financial Group, First Investment Company and National Investments Company were awarded a 44 per cent stake in the Boursa Kuwait. Pursuant to Article 33 of the CMA Law, 50 per cent of the Boursa Kuwait's shares will be offered to the Kuwaiti citizens in a public offer during the fourth quarter of 2019.

In terms of CCPs, according to the CMA Law, the establishing, licensing, managing and operating of clearing houses are subject to the CMA's approval and continuous oversight. The law confers to the CMA substantial authority to regulate licensed clearing houses to the extent that no rule, policy or amendments shall be considered valid unless approved by the CMA.26 The Kuwait Clearing Company is the most prominent clearing house in Kuwait. It provides several services, including:

  1. clearing and settlement services;
  2. derivatives markets clearing and risk management;
  3. dematerialisation and rematerialisation of securities;
  4. pledging and mortgage accounts;
  5. trustee services; and
  6. subscription management services of IPOs.27

As mentioned above, as part of the MDP, the CMA is expected to introduce and regulate a CCP in 2020.

Outlook and conclusions

The CMA, as a relatively new regulator, has been increasingly busy in the past few years organising its internal structures and phasing in its regulatory activities to become effective and to bridge the gap between accepted local practices and international standards. What has been the subject of increasing criticism during its short lifespan has been the attitude it has adopted, characterised by a rigid application of the law and often slow response times when it comes to granting the licences required for persons to carry out their business. The responses from the regulators must be better outlined, explained and substantiated. However, in particular from 2016 to date, the CMA has been seen to streamline its internal processes and take a risk-based approach to its rules, particularly in the sphere of new and repeat debt and equity issuances. In addition, as a consolidated collaborative effort by the CMA, the Boursa Kuwait and the KCC, the MDP is testament to the regulators' commitment to develop, diversify and open up the market to regional and international investors. Professionals can now utilise established modern rules regulating securities activities in Kuwait.

It has also been recommended that clear and easily accessible practical guides and databases be created for regulatory practices and administrative decisions. This is consistent with the CMA's stated goals of increasing the awareness of stakeholders, from both the investment and legal perspectives, in addition to its mandate to improve the CMA's performance in all departments and raise its levels of efficiency and effectiveness. This must also be done in collaboration with other governmental and private sector entities.

On the positive side, many developments have taken place from 2016 to date. The most publicised of these were the complete overhaul of the CMA's regulatory framework following the introduction of the CMA Handbook and, most recently, the inception of the MDP. The CMA and the Boursa Kuwait have taken the unprecedented step of issuing exposure drafts seeking public commentary prior to the adoption of their rules. On review, the regulation of capital markets in Kuwait has been the subject of several reforms and the attitude of the regulators since 2016 has shifted to a more collaborative, consultative and transparent approach.

We believe that the CMA should review the effectiveness of the CMA by-laws on a regular basis. The review should assess whether the by-laws (or parts thereof) achieve their intended objectives and take into consideration the practical feedback of market participants. Furthermore, it is critical for the regulators in Kuwait to streamline their processes and not create double-burden rules. For example, the interplay between the rules of the CMA and those issued by the Central Bank of Kuwait needs to follow a practical framework to alleviate inefficient enforcement.

Finally, the regulatory reforms can be seen as being directly responsible for the membership of the CMA in IOSCO and, more recently, the upgrade of Kuwait by FTSE Russell, MSCI and S&P Dow Jones as an emerging market.28 The classification of the country as a secondary emerging market is seen as a positive step towards welcoming international investors into Kuwait, which in turn creates a pressing need for the continuation of reform in the Kuwaiti regulatory frameworks.


1 Abdullah Alharoun is a lawyer at International Counsel Bureau (ICB). This chapter was prepared with the help of Abdullah Alkharafi and other ICB lawyers and staff. The information in this chapter was accurate as at November 2019.

2 Law No. 7 of 2010 on Establishing the Capital Markets Authority and Regulating Securities Activities.

3 Diverse laws, such as Law No. 31 of 1990 and the Kuwait Stock Exchange regulations.

4 For example, Article 155 of the CMA Law stipulates that the 'Regulatory duties set forth in this Law shall be rendered to the Authority [the CMA] within six months from the date of publishing the Executive Bylaws, and thereupon Kuwait Stock Exchange Committee's work shall terminate in terms of its regulatory aspect.'

5 The Boursa Kuwait and Tadawul (Kingdom of Saudi Arabia) have been the better performers in terms of cumulative total returns since January 2018.

6 Examples of these IPOs are the Kuwait Health Assurance Company and Shamal Az-Zour Al-Oula for the building, execution, operation, management and maintenance of the first phase of Az-Zour Power Plant KSC, in which the state has a minority interest and 50 per cent of the issued shares are offered to Kuwaiti citizens at par.

7 The placement and listing of Mezzan Holding's shares on the Boursa Kuwait on 11 June 2015: and placement and listing of Integrated Holding Company K.S.C.P. shares on the Boursa Kuwait on June 2018:

8 CMA press release dated 28 November 2019, 'Announcement on the Timeline for the Third Phase of the Market Development Project'.

9 Law No. 67 of 1980 (as amended) and Law No. 68 of 1980 (as amended).

10 The amendments in this regard are modelled on French Law No. 364 of 2006 and Egyptian Law No. 88 of 2003 (in particular, Article 105).

11 Reiterating the definition of preferred shares in the Companies Law.

13 The latter is applicable if there was a decision to market the securities in Kuwait.

14 The current CMA by-laws do not recognise issuances under a programme (i.e., in the context of debt capital market issuance). The only exemption to the requirement to obtain CMA approval for the issue of securities is in the case of the issuance of shares (that is, ordinary rather than preferred shares).

15 If the issuer is a special purpose vehicle outside Kuwait but guaranteed by an obligor Kuwaiti entity, prima facie, CMA approval to issue would be required.

16 With the exception of the collection of legal principles issued by the Court of Cassation, published by the Ministry of Justice, which often lags behind by about a year.

17 The Disciplinary Council was established pursuant to Article 140 of the CMA Law. During the financial year 2018/2019, the CGC received a total of 12 complaints and seven grievances. Only three complaints and two grievances were not resolved within the year.

18 This new exemption has yet to be tested by the Kuwaiti courts: the provision in the law stipulates 'Without prejudice to the tax exemptions from the prescribed tax on profits arising from disposal of Securities issued by companies listed in the Exchange, returns in respect of Securities, bonds, financial Sukuk and all other similar Securities, regardless of the issuer, shall be exempted from taxes'. It is also not clear from a plain reading of the provision whether it extends to all securities or only those from companies listed on the Boursa Kuwait.

19 Law No. 46 of 2006, Concerning Payment of Zakat Tax.

20 Kuwait Government Online (2013), 'Introduction to doing business in Kuwait':

21 Article 4 of Law No. 2 of 2009.

22 The court's company restructuring circuit decided on 24 July 2014 to remove the Investment Dar (once the country's flagship financial institution) from the protection given under the Financial Stability Law soon after its enactment.

23 World Bank (2013) press release: 'World Bank supports strengthening of Kuwait's insolvency and creditor/debtor regime':

24 The date the notice of the company's establishment was published in the Official Gazette.

25 Being a qualified international operator.

26 Pursuant to Article 54 of the CMA Law.

27 Kuwait Clearing Co, KSC (2014), services,

28 The Boursa Kuwait (2019), retrieved on 9 September 2019 from

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