Developments in the banking sector in Kuwait

Author: | Published: 5 Sep 2017
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According to the Central Bank of Kuwait (CBK) and based on recent economic, monetary and banking activity, Kuwait continues to maintain a moderate growth in domestic economic activity. This activity has been supported by public expenditure, particularly capital expenditure, despite low crude oil prices. The CBK has noted that the last year has been characterised by soundness of financial positions in the local banking sector and modest growth and improvement in the key monetary aggregates and indicators as a reflection of the domestic economic activity.

Notable in this respect, the Kuwaiti government established its Global Medium Term Note (GMTN) Programme in early 2017. The Notes were issued on March 20 2017 and comprised $3.5 billion Notes due in 2022 and $4.5 billion Notes due in 2027. It is contemplated that the proceeds will be used to finance the deficit in the budget left by the low oil price.

It should be noted also that several Kuwaiti and regional conventional and Islamic banks issued bonds and sukuk under the Capital Markets Authority's by-laws in order to comply with Basel III capital adequacy requirements.

Below is the summary of the developments in the banking sector in Kuwait.

Electronic Signatures

Law 20 of 2014 on Electronic Transactions (the Electronic Transactions Law) allowed for (among other things) electronic signatures to be used in commercial transactions. The Electronic Transactions Law is largely modelled on the UNICTRAL model law and requires that accredited service providers certify electronic signatures as evidence of authenticity.

Article 20 of the Electronic Transactions Law provides that the person providing an electronic signature must provide the electronic authentication certificate. Such accredited service providers are to be licensed by an appropriate authority in Kuwait in co-ordination with the Public Authority for Civil Information.

Pursuant to Article 22 of the Electronic Transactions Law, such authority will regulate the process of providing electronic certification and electronic signature services.

Article 1 of the Executive Bylaws provides that the "appropriate authority shall be the entity engaged by the Council of Ministers to oversee the issuance of licences and approvals required for the conduct of electronic certification services, electronic signature and other activities related to electronic transactions and information".

We note that Chapter 6 of the Electronic Transactions Law deals specifically with Electronic payments (i.e. Articles 28 to 31). While electronic transfers of money are permitted, entities involved in the same are required to comply with the provisions of Law 32 of 1968, which established the Central Bank of Kuwait and banking regulation, and with money laundering laws and regulations. Additionally, such entities are required to take proper steps and procedures to ensure the safety and security of their customer's transactions.

Pursuant to Council of Ministers Resolution 1659 of 2014, the Central Agency for Information Technology was appointed to oversee the issuance of licences and approvals required for the conduct of electronic certification services, electronic signatures and other activities related to electronic transactions and information except for the supervision and administration of Root Certification (as defined in the executive regulations). Pursuant to Council of Ministers Resolution 1660 of 2014, the Public Authority for Civil Information was nominated to supervise and administer (including licensing) root certification. While we note that electronic signatures are not being used to widely in Kuwait, we are aware that there are companies that are being licensed to provide such services over the past year.

Collateral System for Financial Brokerage Firms

A notable development in the capital markets is the implementation of a new collateral system for financial brokerage firms.

Under the Capital Markets Authority (CMA) Resolution 72 of 2016, in the event of a failure to settle any securities transaction in the timelines specified by the CMA, the broker, custodian or clearing agency may cover any obligations through financial guarantees provided by them. Any such guarantees should have a buy-in with a specific maximum time to allow a roll over and should provide enough cash to complete a close out.

Furthermore, the CMA passed Resolution 95 of 2016 to implement the collateral system for brokerage firms and cancelled the previous brokerage guarantee system, effective from April 1 2017.

Adoption of a new post-trade model by the CMA

Under CMA Resolution 72 of 2016, in addition to the ability to guarantee settlement obligations by licensed persons, the CMA adopted a new post trade model to align post-trade practices with international standards.

Under the new model, the settlement cycle for all traders is trading day plus three business days. A delivery versus payment system was adopted, as approved by the Bank for International Settlements and all complete cash settlements relating to securities are to be settled through financial institutions licensed by the CBK. Licensed persons are to segregate their client accounts in omnibus accounts using appropriate numbering in accordance with rules to be issued by the CMA. (However, clients of qualified brokers registered on Boursa Kuwait shall be exempt from fees payable for their assets to omnibus accounts for a period of two months from the start of any activity to transfer such assets.) And finally, custodians have the ability to approve or reject each trade during a specified period according to rules of clearing specified by the CMA.

We expect that the CMA may issue more detailed rules to implement the newly adopted post-trade model.

About the author
 

Ibrahim Sattout

Partner, ASAR – Al Ruwayeh & Partners
Kuwait City, Kuwait
T: +965 2292 2700
E: isattout@asarlegal.com
W: www.asarlegal.com

Ibrahim Sattout is a partner at ASAR – Al Ruwayeh & Partners. He has over 23 years of experience, 16 years of which have been spent in Kuwait.

Sattout's experience includes banking and finance, public and private partnerships, government projects, commercial and corporate, acquisition transactions, capital markets and arbitration. He has been extensively involved as lead and co-counsel for the Kuwaiti government, local and foreign investors and lenders on the major BOT and PPP projects undertaken in Kuwait in addition to acquisition transactions, debt and equity arrangements and financing transactions.

He has led ASAR team that advised the Partnerships Technical Bureau (PTB) and the Ministry of Electricity and Water (MEW), in respect to the structuring and procurement of the Az Zour North IWPP Phase 1.

He is currently the lead counsel of the ASAR team advising Kuwait Authority for partnership projects and the MEW as part of the transaction advisor, on all local legal aspects of the Az Zour North IWPP Phase 2 and the Al Khairan IWPP Phase 1.

He is fluent in English, Arabic and French


About the author
 

Brenda Ntambirweki

Associate, ASAR – Al Ruwayeh & Partners
Kuwait City, Kuwait
T: +965 2292 2700
E: bntambirweki@asarlegal.com
W: www.asarlegal.com

Brenda Ntambirweki is an Associate with ASAR – Al Ruwayeh and Partners and has eight years of experience. She is routinely involved in mergers and acquisitions, restructuring and insolvency, and banking and finance transactions. Her recent experience includes an acquisition purchase of certain assets and transfer of employees in a sale of business transaction; a facility to subsidiaries of a Kuwaiti shipping company which also acted as guarantor; the sale of five A330 airbus aircraft that were leased to a Kuwaiti airline and the restructuring of a Kuwaiti investment company’s debts through a debt for asset swap.


 


 

 

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