Ahmad A. AL MELHEM
Chairman
CAPITAL MARKETS AUTHORITY

The reduction of systemic risks

Kuwait

Ahmad A. Al Melhem, chairman of the Capital Markets Authority (CMA), talks to The Energy Year about the authority’s latest developments and steps it is taking to reduce systemic risks. The Capital Markets Authority is a regulatory authority which works on developing and supervising the activities of capital markets in Kuwait.

What have been the key latest developments for the CMA in 2022?
The CMA has obtained the ISO certificate in Information Security Management (ISO/IEC 27001:2013), which is a world-renowned standard for information security management systems that enables organisations of all sectors and sizes to manage the security of assets such as financial information, intellectual property, employee data and information entrusted by third parties.
The CMA also joined the membership of the Global Financial Innovation Network (GFIN) and is a member of the board of directors for the International Organization of Securities Commissions (IOSCO) as a result of winning the position of board representative of the Growth and Emerging Markets Committee – “GEMC”.
In addition to that, we issued the 18th module of the executive bylaws on passporting of financial Products, which regulates the inter-registering of financial products between the authorities of the GCC countries, and we completed the signing of a cooperation agreement with the Chartered Institute for Securities & Investment (CISI) regarding the qualification examinations. The CMA also ranked first in the governance of public authorities with independent budgets.
We also launched a webpage aimed at protecting and educating persons dealing with companies and persons against whom resolutions have been issued by the CMA. In 2023, we also reviewed and amended the provisions of Module Eleven (Dealing in Securities) of the executive bylaws of Law No. 7 of 2010, and released amendments to the executive bylaws regarding sustainable finance controls, as well as the guidelines for those requesting the right to access information and the rules and procedures on CMA announcements regarding the issued disciplinary board resolutions and their handling methods. Finally, we issued the 19th Module of the executive bylaws, which addresses the topic of fintech and other topics such as crowdfunding and robo-advisory.

What are the CMA’s main priorities for 2023?
Our Second Strategy, which runs from 2018/2019 to 2022/2023 and ends on March 31, 2023, focuses on fostering market efficiency and competition, improving investor protection, and supporting the stability and sustainable development of the capital markets.
The Third Strategy, which has not yet been approved and will run until 2026/2027 focuses on the development of the capital markets with a focus on boosting market regulation, upgrading market infrastructure and promoting market investment and growth. Collaboration and communication is also very important with our strategy, with a focus on investor awareness and education, in addition to promoting financial inclusion and enhancing local and international cooperation and integration.
The last pillar of our new strategy is organisational enablement with a focus on strengthening internal capabilities and improving operation effectiveness and efficiency in addition to digital transformation.

Which are the key successes of the CMA?
The CMA works closely with Boursa Kuwait and Kuwait Clearing Company to improve the financial markets in Kuwait along with implementing global and regional best practices and regulations.
The privatisation of Boursa Kuwait is one of the key successes achieved within the CMA Market Development Project, having reached its third phase to date out of four phases. Kuwait was announced as a secondary emerging market according to the FTSE Russell Index in September 2017, mainly due to the reforms in the capital markets carried out by the CMA along with its key stakeholders. Two years later, Kuwait was promoted by the MSCI index as an emerging market.

What steps has the CMA taken recently to reduce systemic risks?
One of the CMA’s main objectives is to reduce systemic risks arising from securities activities and to ensure financial stability in the long-term to face systemic risks. The CMA is required to have financial reserves for that purpose. Certain measures and requirements are in place within the CMA’s regulatory framework to mitigate this risk, which include security exchanges, clearing agencies and licensed persons. In that context, an internal report is produced periodically for the purpose of monitoring systemic risk-related indicators.
As part of the CMA’s continuous efforts in monitoring and mitigating systemic risks, a permanent high-level committee has been formed in 2019, along with a supporting executive team. Both the committee and the team are governed by policies and procedures that streamline the process of addressing systemic risks. Moreover, a joint committee was formed in 2021, combining the CMA, Boursa Kuwait and Kuwait Clearing Company to monitor market risks and performance.

How attractive are Kuwaiti financial markets vis-à-vis those of neighbouring countries?
In terms of Kuwait’s attractiveness in the market, it’s safe to mention the increase of oil prices in the past year. This indicates a stable economy, as Kuwait is one of the largest global contributors in oil production.
On the other hand, foreign investment in Kuwait is active, as trading inflow of foreign investors have increased in the past three years, which makes Kuwait’s financial markets more attractive to foreign investors. To further encourage foreign investment in the country, Kuwait does not enforce individual income tax, which lowers the cost of trading in respect to our neighbouring countries.

What are the key challenges for Kuwait to become a global financial hub?
The key challenges for Kuwait to become a global financial hub relate mostly to further developing the Kuwaiti capital markets, and these challenges include the complexity related to the establishment of financial market infrastructures that provide both stability and efficiency to the market, creating an attractive listing environment and introducing new financial instruments to promote liquidity.
To address these challenges, the CMA is working with Boursa Kuwait and Kuwait Clearing Company in a coordinated effort within the framework of the Market Development Program to revamp the financial market infrastructure by introducing the Central Counter Party, the Central Securities Depository and the Clearing Membership structure which will improve market quality, efficiency and stability.
Additionally, the aforementioned programme aims to improve the quality of services provided by market intermediaries through the introduction listing rules for fixed-income instruments and ETFs. In the future, the programme also aims to develop the derivatives market and introduce further enhancements that will hopefully lead to the upgrading and improvement of Kuwait’s status as a leading financial centre.
It is important to highlight the need to integrate the CMA’s services into the market infrastructure entities and the relevant government agencies. This is part of the digital transformation strategy for Kuwait, a nation-wide initiative that would upgrade the current digital infrastructure and increase efficiencies for all economic activity.

What role does the CMA play in helping Kuwait achieve its Vision 2035 goals?
The CMA contributes to Kuwait’s Vision 2035 both directly and indirectly by accomplishing a number of the plan’s pillars (a sustainable, diversified economy, effective civil service, creative human capital and global positioning), goals and initiatives. This is done by strengthening the efficiency and competitiveness of Kuwait’s economy and investment environment, attracting foreign investment, developing specialised human capital in the financial markets sector, improving institutional work and creating a distinguished global position for Kuwait to be a leading financial hub in the Middle East.

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