New regulations for debt instruments on crowdfunding platforms: The Capital Market Authority (CMA) is out with new rules that aim to regulate the offering of debt instruments on crowdfunding platforms, and the institutions licensed to conduct arranging activities. The amendments will be up for public consultation on Istitlaa until Wednesday, 23 April. You can check out the full draft amendments here (pdf).

The rationale: The key proposals aim to establish licensing requirements for capital market institutions to engage in offering debt securities on crowdfunding activities and would allow them to issue debt instruments in the sukuk market. It will also enable companies with a fintech experimental permit to secure the necessary license to operate as a capital market institution.

What’s new? The proposed amendments include the following:

  • Crowdfunding platforms on which debt instruments are offered must be licensed as special purpose entities;
  • Issuers cannot use offering proceeds for lending, investment, or debt repayment;
  • The offering period must not exceed 45 days, and total proceeds must be a minimum of 80% of the total value disclosed in the offering document. Proceeds are otherwise to be refunded to subscribers within 5 days;
  • Only registered clients can subscribe to debt instruments, with each client subject to a limit of SAR 25k per offering and SAR 100k in total;
  • Retail subscribers can cancel their subscription within 48 hours without incurring any fees;
  • Platforms are responsible for evaluating debt instruments and conducting due diligence on the credit record of issuers and sponsors to ensure their solvency;
  • Detailed requirements for the content of offering documents were laid out.

SOUND SMART- Crowdfunding platforms offer less stringent rules than stock exchanges for offering debt securities, making them an easier and faster option for issuers to raise capital. Meanwhile, they don’t provide the liquidity offered by the stock exchanges, making investors unable to sell the securities before maturity.

Who’s in the game: Some of the operational debt crowdfunding platforms include FundingSouq, Lendo, Forus, and Tameed.

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