Kuwait regulator scrutinizing reverse solicitation(2)

Kuwait's securities regulator, the Capital Market Authority (CMA), is clamping down on the marketing practices of foreign fund managers, according to legal sources.

Traditionally managers promoting funds in Kuwait could fly in, meet with clients, sign subscription agreements, and fly out a few days later without worrying too much about local securities laws, often relying on “reverse solicitation” or “passive marketing” practices, without regulator interference.

GPs wanting to continue relying on reverse solicitation must now act with more care, say legal sources as the CMA now considers sending specific information and documents (such as a prospectus, private placement memorandum or merely an investment presentation) even in response to an enquiry from Kuwaiti investors, as a violation of its regulations.

Legal sources are therefore advising clients to conduct all communications with potential investors outside Kuwait. Any marketing materials should not be distributed when inside Kuwait and all relevant documentation relating to the fund should be executed outside of Kuwait.

“[This] conservative approach may not necessarily appear to be practical, but it remains advisable as the CMA is likely to strictly enforces its licensing requirement,” said one regulatory lawyer.

The danger of investor dispute in the country should also weigh on GPs minds. Back in 2012 Kuwait's National Industries Group made a claim against the Carlyle Group, alleging the firm sold it a fixed income fund in 2006 without the necessary license.

For firms that want to market in the region without using reverse solicitation they must obtain a licence from the CMA, which can only be offered through a CMA licensed local promoter.