Capital Markets Law- a regulatory tool?​​​*

Following the Financial Stability Law of 2009 (“FSL”) and its Implementing Regulations, the special court (the “FSL Court) established under it saw its first case in March 2009, only a month after its endorsement by the Amir.  The proceedings that ensued were of great interest and followed not only to those in Kuwait but globally as well.  While a separate chamber was dedicated to the FSL Court on the same floor as that of the Cassation Courts, apart from the applicants’ counsel, very few knew where the court was situated.  The FSL Court hearings were followed by a series of revelations  that shed light on the inadequacies within the investment market regulatory regime.The financial crisis which prompted the birth of the FSL had already alarmed investors who sought multiple liquidations, redemptions and exits from their investments which pushed investment companies to act fast on short notice, with very limited financial resources.  Disillusioned investors started believing that their investments would have some hope in that their relationship to their investment companies would transform into a creditor-debtor relationship, or at the worst, the investors would become unsecured creditors.  When these investors were faced with the fine print that protected the investment companies, many an investor ended up in the cardiac wards.  The result was that the country saw unprecedented irregularities in the investment market and as a consequence thereof the lack of corporate governance, laxity in the degree of supervision and thin measures of control were also revealed. 

​In February 2010, Parliament passed Law No. 7 for the Establishment of the Capital Markets Authority and the Organization of Investment Activities (“CML” or the “Law”) in order to remedy the situation that was soon spinning out of control.   The CML created a Capital Markets Authority (“CMA”) an independent body, one of the functions of which is the organization and regulation of investment activity.  Naturally this broad function covers more than just “investment” per se and therefore naturally extends to monitor and ensure corporate regularity as well.  The CML and its implementing regulations are voluminous and as such this article does not intend to cover all the areas regulated by the Law such as subscription to securities, investments, minority rights, funds, disclosure, the examination of the accounts of an investment companies to name a few, however these will be included in the next volume/s.  We shall in this work refer merely to the consistent approach of Kuwaiti parliament on the expanding the existing judicial structure.

Much like the FSL the CML under Article 108 also establishes a new specialist court that is divided into penal and non-penal courts of first instance.  The establishment of the penal court is particularly interesting and much to the displeasure of the traditionalists, who believe that the existing criminal courts are perfectly capable, is a radical introduction into the judicial system.  Both the penal and non-penal circuits under the Law are to be formed by three judges each, however both circuits are still subject to the civil and commercial procedures law.  Under Article 112 the Law further provides for a right of appeal on the judgments rendered by the penal and non-penal courts of first instance, by the creation of an appellate court for both categories.  However the text of Article 112 suggests that the judgments rendered by the special court of appeal shall be final and non-contestable, which effectively leads one to assume that the right to a judicial review by the Court of Cassation (the Supreme Court) has been abrogated.  There is argument amongst jurists that since the civil procedures law is held to apply to such proceedings therefore petition for a judicial review to the Court of Cassation should be an inherent right guaranteed under the procedures law, however counter argument is that the CML specifically refers to the judgment of appellate court as being “final and incontestable” and therefore since it is a ‘specialized’ court therefore an exemption to procedural rules.   While in theory the Law and its implementing regulations put forward a most desirable solution for the systemization, organization, regulation and supervision of the securities industry in Kuwait the repercussions of the practical application of the Law will certainly bring forward obstacles. As observed during the hearings of the first application under the said FSL, much mayhem and disorder was seen not only within the existing court structure (directives were issued to the Executions Court, which were unaware of what procedure to follow for the registration of such directives) but in the court room itself with non-parties addressing the bench.  Kuwait has certainly proved that it is willing to go at any lengths to develop and evolve its legislature and judiciary even if at the expense of causing confusion to practitioners.

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