Mohammed El Kuwaiz, Chairman, Capital Market Authority (CMA): Interview
What steps can regulatory authorities take to encourage listed companies to align with environmental, social and governance (ESG) principles?
MOHAMMED EL KUWAIZ: The CMA is developing a regulatory framework for green, social and sustainable debt instruments, alongside incentivising diverse issuances in the sukuk (Islamic bonds) and debt markets. A significant development has been the growth in the number of companies publishing sustainability reports. By the end of 2023, 94 companies had disclosed sustainability data, a substantial increase from 24 companies in 2019.
To further encourage ESG alignment, one approach is to implement modelling that balances local and international investor expectations. For example, while foreign investors might focus on board diversity or gender pay gaps, local investors often emphasise Saudiisation rates. Harmonising these perspectives and expanding mandatory ESG disclosures across listed companies is likely to advance their adoption significantly. Additionally, continuing to promote these disclosures – such as through reduced fees or similar benefits – could encourage wider participation in ESG-related initiatives.
To what extent have the reforms in debt markets impacted the volume of securities trading or the issuance of new debt instruments?
EL KUWAIZ: The debt market has garnered significant attention due to its rapid growth in demand and volume, along with increasing regulatory and infrastructure developments. In response, the CMA, in collaboration with key regulatory and financial entities in the Kingdom, has launched a strategy to develop the market. This approach aims to boost private sector participation, enhance liquidity and improve infrastructure. The goal is to reach a corporate sukuk (Islamic bonds) and debt instruments market size of over SR900bn ($239.9bn) by 2030, which means the market needs to grow seven times its current size to deepen one of the most important financing streams of the capital market.
How is technology reshaping the trading landscape of Saudi Arabia’s capital markets?
EL KUWAIZ: Technology is revolutionising Saudi Arabia’s capital markets, making trading more accessible, efficient and transparent. Innovations such as tokenised securities are being explored, with the CMA working through its financial technology (fintech) lab to assess the risks and opportunities associated with these developments. Indeed, the CMA has already issued permits for a number of fintech companies and has also outlined a strategy for 2024-26 that focuses on further developing this sector.
Regulators must also balance these technologies with risk mitigation. While tokenised securities could enhance market liquidity and efficiency, they must be introduced with appropriate safeguards to prevent excessive volatility. The CMA can test these innovations in a controlled environment through the Fintech Lab – its regulatory sandbox – ensuring that technology enhances the market without unnecessary risks.
In what ways can regulators and stakeholders boost retail investors’ participation in capital markets?
EL KUWAIZ: The involvement of retail investors is essential for the continued growth of local capital markets. One way to increase their participation is by offering a range of investment products, such as real estate investment trusts, index funds and crowdfunding platforms. Financial education initiatives are also crucial, and the CMA can offer targeted programmes to improve retail investors’ financial literacy.
Technological innovation has been key in this regard. Mobile trading apps and online platforms have made it easier for retail investors to participate. Robo-advisory services, which offer personalised investment strategies based on individual risk profiles, are also expanding. Additionally, introducing digital assets is expected to open new avenues for retail investors, democratising access to diverse asset classes.
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