Debt-based crowdfunding: Saudi Arabia proposes new rules

Out-Law News | 13 Jul 2020 | 9:41 am | 1 min. read

The move to develop formal regulations around debt-based crowdfunding in Saudi Arabia is a natural evolution of the market for debt-based fundraising in the country, an expert in Middle East financial services regulation has said.

Tom Bicknell of Pinsent Masons, the law firm behind Out-Law, was commenting after the Saudi Arabian Monetary Authority (SAMA) opened a public consultation on proposed draft new rules and regulations for practicing debt-based crowdfunding in the Kingdom.

Bicknell said the proposed new regulatory framework reflects the regulator's role in working towards the Saudi government's overall 2030 vision by supporting economic growth, innovation in financing activities and promotion of financial stability.

Bicknell said: "The popularity of crowdfunding as an innovative way to raise money has grown substantially around the world in recent years, and the experience in Saudi Arabia is no different. To-date, firms looking to undertake equity-based crowdfunding in Saudi Arabia have looked to the Capital Markets Authority (CMA) for rules and guidance, and now SAMA looks set on providing further clarity around how firms may look to build out their debt-based crowdfunding initiatives."

"For some time now we are aware that SAMA has been supervising a number of debt-based crowdfunding platforms in their regulatory sandbox, so the recent announcement feels like the natural next step in the evolution of this growing area of debt-fundraising in the Kingdom," he said.

The draft proposals set out by SAMA include plans to regulate debt-based crowdfunding companies conducting the activity in the country and outlines requirements in relation to licensing, data protection, corporate governance, internal regulation, risk management, internal audit and nationalisation, amongst other topics.

Companies engaged in debt-based crowdfunding in Saudi Arabia will be required to have minimum paid-up capital of 5 million SAR ($1.33m). According to the regulations, SAMA is authorised to amend this minimum capital in accordance with market conditions, and therefore attract new types of investors including SMEs to enter the crowdfunding market in the Kingdom.

SAMA's consultation is open for 30 days from 7 July. The regulator has said it will factor in the feedback it receives when finalising the new regulations. Respondents can provide their views to SAMA by completing the relevant form and sending it to the designated email address, [email protected].