المملكة: Urgent: Mandatory supplement and prior approval… A new regulation regulating endowment investment products

The General Authority of Endowments presented a list of products Endowment Investment via the “Reconnaissance” platform with the aim of regulating the endowment provisions in investment products subject to the authority’s supervision, in a way that contributes to achieving the goals of the Kingdom’s Vision 2030, which seeks to maximize the role of the endowment sector in supporting the national economy and sustaining community development.

The regulation specifies its scope of application to include all endowment investment products that are subject to the supervision of the competent authority, in addition to applicants. And the authorized persons, endowment donors and supervisors of the products, as it stipulates the possibility of establishing an endowment investment product in accordance with the relevant regulations, provided that it includes all the terms and conditions of the endowment in what is known as the endowment appendix, which is the basic reference document regulating the relationship between the endowment donors, beneficiaries and supervisors.

The regulations require obtaining the approval of the General Authority for Endowments before offering any endowment investment product, whether it is A public or private offering, with the applicant having to fulfill all regulatory requirements and submit supporting documents that include the prospectus, or offering document, the nature of the endowment project, and the endowment appendix that explains the type of endowed assets, the powers to manage them, and the mechanism for distributing returns.

The regulations included in their articles a precise definition of the contents of the endowment annex, including the type of endowed assets, construction and banking formulas, and the risk management mechanism, in addition to Determining the supervisor, his powers and fees, and the fate of the assets in the event that the product expires or the offering cannot be completed.

The regulations set clear procedures for approving offering requests, as the authority is obligated to consider the application within three working days from the date of submission, and decide on it within ten days from the completion of the documents, while the entity submitting the application is given a period of five days to complete Regulatory notes.

After the Authority’s approval of the offering is issued, the authorized entity must complete the offering requirements with the competent authority in accordance with the applicable regulations, and notify the Authority in the event of any fundamental amendment or failure to proceed with the offering for any reason.

The regulations stressed the importance of documenting the moratorium after the completion of the offering within a period not exceeding five working days through an authority. Competent documentation, provided that the endowment is officially registered with the General Authority of Endowments during the same period, and an official registration certificate is issued after fulfilling the regulatory requirements.

The endowment superintendent is required to create an investment account for the endowment, and transfer ownership of the endowed securities to him in accordance with the procedures for transferring securities without transactions, in a way that enhances transparency and governance in the management of endowment assets.

The regulations stressed that the appointment of the endowment supervisor, his powers and responsibilities are subject to the statutory provisions and the condition of the endowment, with the necessity of concluding a memorandum of understanding with the beneficiary party to determine the endowment’s banks and the mechanism for distributing the returns, and to ensure its compliance with what is stated in the endowment annex.

It stipulates that the fate of the assets after the end of the product shall be in accordance with what was stipulated in the endowment annex, or according to what was stated in the endowment annex. It complies with the relevant regulations if this is not possible.

The regulations devote a third chapter to regulating endowment investment portfolios, which do not require prior approval from the Authority to create them, but they oblige the administrator to document the endowment of funds in accordance with the specified controls, register the endowment within three days of issuing the official document, and complete the opening of the investment account and transfer of financial assets within five days.

It stressed the necessity of registering the investment account and the endowment portfolio with the Authority, and attaching the agreements for opening the account and managing the portfolio, especially if its management is entrusted to a licensed financial market institution.

Chapter Four of the regulations came to set the regulatory framework for establishing endowment investment funds, as it permitted the concerned authorities to include the endowment annexes to the funds to include the creation of various endowment assets. It includes real estate, companies, or financial assets, in a step aimed at enabling the endowment sector to invest in long-term financial and strategic instruments.

The regulations stressed the necessity of including the endowment appendix for the endowment investment fund precise details that include the nature of the endowment assets, the beneficiary party, the mechanism for disbursing the returns, the investment strategy and the dividend distribution policy, in addition to determining the level of main risks, in a way that enhances governance. And transparency in the management of these funds.

The regulations made it possible for financial institutions and investors to convert existing investment funds into endowment investment funds after fulfilling the regulatory conditions, which opens new horizons for developing financial products with a social and development impact.

Article Twenty-Seven affirmed that it is not permissible to merge an endowment investment fund with another except after obtaining The approval of the Authority, with the need to provide justifications for the merger and its financial and social impact, in addition to preparing a draft merger agreement and the amended endowment annex, and ensuring that the updated terms and conditions for the fund resulting from the merger are met.

As for Chapter Five of the regulations, it deals with endowment investment sukuk as one of the innovative financing tools that contribute to developing the endowment system and diversifying its sources. Financing it.

The regulations clarified that the endowment supplement for endowment investment sukuks must specify the nature of the assets or projects subject to financing, their purpose, and the expected returns from them, in addition to stating whether the endowment will arise from the proceeds of subscription upon issuance or from the assets resulting from the extinguishment of the sukuk.

The provisions regarding the entitlements of sukuk holders are stated, Whether with regard to their right to returns on investment assets to recover the principal value and specified returns, or their partial or total waiver in favor of the endowment project, which allows the use of sukuk as a development tool that combines financial return and sustainable social impact.

The regulations in Chapter Six established an integrated supervisory system to ensure that endowment investment products adhere to their regulatory provisions.

Article Twenty-Nine confirms that endowment investment products are subject to the supervision of the General Authority for Endowments and the competent authorities according to the scope of each authority’s powers, while obligating the endowment supervisor to perform several tasks, the most prominent of which are following up on the implementation of the endowment’s condition, evaluating the performance of product management, and submitting periodic reports to the Authority.

It obligated the supervisors to notify the Authority within a period not exceeding five days of the occurrence of any incident. A fundamental change in the product, including amending the endowment supplement, terminating the product, changing banks, or replacing the supervisor, in order to enhance transparency and continuity of control.

The regulations specify in Article Thirty-One the requirements for the annual reports submitted by the administrator, which include details of the returns achieved and distributed, operational expenses, the extent of compliance with the terms of the donor, and any facts affecting the purposes of the endowment, so that they are delivered within three months of the end of the fiscal year.

Article Thirty-two regulates cases of default of endowment investment products, as It confirmed the Authority’s coordination with the competent authorities to address cases that may affect compliance with the endowment condition or the fate of the endowment assets, to ensure continued benefit from those assets for their designated purposes.

The regulation concluded with its seventh chapter, which included the final provisions, as the General Authority for Endowments granted the authority to exempt from the application of some provisions of the regulation, partially or completely, according to its discretion, without prejudice. With the jurisdiction of the Capital Market Authority, the authority was also authorized to issue procedural guides and indicative forms that facilitate the application of the regulation, including the endowment annex model for each investment product.

The regulation also stipulated the cancellation of previous regulations for establishing portfolios and endowment investment funds, unifying the regulatory reference under the umbrella of one integrated regulation.

Existing endowment investment products were obligated to rectify their conditions within six months from the effective date of the regulation, in preparation for its implementation immediately upon its publication in the Official Gazette.