Oman Modernises Its Securities Regulatory Framework: What the New Executive Regulations of the Securities Law Mean for Financial Institutions and Capital Markets

Introduction

Oman’s Financial Services Authority (FSA) has issued the long-awaited Executive Regulation of the Securities Law, which represents one of the most comprehensive updates to Oman’s capital markets rules in recent times. Approved by H.E. Dr. Khamis bin Saif al Jabri, Chairman of the Board of Directors of the FSA, the new regulation introduces the general provisions of the Securities Law issued by Royal Decree No. 46/2022 and replaces the FSA’s Executive Regulations of the Capital Market Law (CMA Decision 1/2009).

For banks, brokers, asset managers, credit rating agencies, and other capital market participants, the new Executive Regulation represents a major change in the licensing, capitalisation, and supervisory requirements for securities activities in Oman. Below, we provide an overview and analysis of the key changes.

Background: Oman’s Securities Law and Vision 2040

The new Securities Law (Royal Decree 46/2022) commenced on 20 June 2022, repealing the Capital Market Law and providing a unified legal framework for regulating all aspects of securities in Oman. The Securities Law authorises the FSA (former Capital Market Authority) to regulate not only traditional securities issuers and intermediaries but also emerging capital market instruments and activities, including fintech innovations, derivatives, futures, and virtual investment products.

The new Executive Regulation follows a major review of Oman’s capital market laws, with the objective of positioning Oman as a dynamic financial centre supporting the financing needs of Oman Vision 2040. Ahmed bin Ali Al Maamari, the FSA’s Vice Executive President, noted that the new regulation constitutes “a structural transformation” of the Omani capital market, with updated frameworks for capital market institutions and securities houses.

Key Elements of the New Executive Regulation

The Executive Regulation consists of seven chapters organised around the following key areas:

1. Definitions and general provisions
2. Capital market institutions
3. Operating entities: licensing, permitted activities, and supervisory requirements
4. Credit rating agencies
5. Collective investment schemes
6. Issuing entities: disclosure obligations and market conduct
7. Implementation and supervisory powers

This chapter-based regulation provides a consolidated set of requirements for financial institutions, as compared to the previous organisational approach of decisions and circular letters.

Key Reforms Financial Institutions Need to Know

1. Investment Banking Becomes a Regulated Activity

One of the most significant changes in the new regulation is that investment banking activities are now subject to licensing and supervision by the FSA. This reform is expected to diversify the roles of investment banks in Oman’s capital market and support improved liquidity conditions in the market. Investment banks licensed by the FSA will play an essential intermediary role between issuing companies and investors. In particular, investment banks will advise issuers on the design and timing of bond and shares offerings, ensuring alignment of financing terms with project implementation timelines and budgets.

2. Minimum Capital Requirements and Structural Separation for Banks

The new regulation contains detailed minimum capital requirements and supervisory instructions for capital market operating entities. In relation to banks, the regulation allows for a three-year transition period for licensed banking institutions to separate their securities activities into an independent, separately licensed entity.

The regulation notably permits licensed banks to continuing managing custody, safekeeping, trust, and underwriting services alongside their core commercial banking operations. This exception is explicitly provided for in Article 2 of the regulation.

3. Enhanced Risk-Based Supervision

The new regulation provides for improved risk-based supervision of capital market operating entities and introduces requirements relating to:

– Capital adequacy

– Market, credit, and operational risk management

– Business continuity planning

– Other prudential safeguards to promote overall system resilience

Banks and other financial institutions should evaluate their risk management capabilities in light of the enhanced requirements and consider any necessary operational or organisational changes.

4. Licensing Framework for Credit Rating Agencies

For the first time, the new regulation provides an institutional framework for licensing and registering credit rating agencies locally and internationally. The regulation aims to facilitate the development of Oman’s credit rating sector and enhance risk assessment capabilities of local investors and other market participants.

5. Revised Fee Structure for Capital Market Activities

The FSA has revised the fee structure for capital market activities and services, with the objective of balancing the supervisory burden on regulated entities and maintaining Oman’s competitiveness as a financial centre.

6. Revised Crowdfunding Rules and Fintech Licensing Framework

The new regulation revises the regulatory framework for crowdfunding activities and products offered in Oman. The regulation provides the FSA with the flexibility to licence activities and services relating to innovative fintech instruments and capital market solutions without the need for additional primary legislation.

Transition Rules: What Should Institutions Do Now?

The new regulation provides for a number of transition rules, which are of particular importance to banks, brokerages, and other financial institutions:

• The general transition period is six months, with all capital market entities and operators required to comply with the requirements of the new regulation within this timeframe.
• For banks, a three-year transition period is provided for restructuring their securities activities into an independent entity (subject to the exceptions for custody, safekeeping, trust, and underwriting services).
• The instructions and procedures previously issued by the FSA remain applicable until amended or revoked, so long as they are not inconsistent with the requirements of the Securities Law and the Executive Regulation.

Banks should note that the three-year transition period for restructuring their securities business is a limited window and that planning should commence immediately to allow sufficient time for the necessary organisational and regulatory changes.

Implications for Financial Institutions and Capital Markets

The implications of the new regulation for banks, brokerages, asset managers, investment banks, credit rating agencies, and other financial institutions are significant. Below, we highlight some of the key practical steps these entities should consider:

• Evaluation of corporate structure: Banks and other financial institutions conducting securities activities directly should determine whether such activities will be separated into a separately licensed entity in accordance with the requirements of the new regulation.
• Review of capitalisation: Institutions should assess the minimum capital requirements under the new regulation and ensure that their capital adequacy is aligned with the requirements.
• Compliance risk management: Entities should consider the revised organisational and supervisory requirements of the new regulation and enhance their compliance management frameworks accordingly.
• New opportunities in Oman’s capital market: The new licensing regime creates opportunities for local and international financial institutions to participate in Oman’s capital market.
• Monitoring of further FSA instructions: Additional guidelines and instructions from the FSA are expected as the implementation of the new regulation commences.

Conclusion

Oman’s FSA has issued an updated Executive Regulation of the Securities Law, which will be the most significant reform to Oman’s capital market since the introduction of the Securities Law in 2022. The new regulation enhances the capital market legal framework in Oman, creating the conditions for increased market diversity and depth and contributing to the realisation of Oman Vision 2040. The updated licensing, supervision, and organisational requirements have significant implications for financial institutions and capital market participants.

Banks, brokers, asset managers, credit rating agencies, and other regulated entities should review the practical implications of the new regulation and consider necessary steps to ensure continued compliance with the new requirements.