Key provisions summary of Oman’s new FSA regulation

Entities falling within the scope of the New Regulation must regularize their status within 6 months from the date on which the New Regulation entered into force.

Licensed banking institutions carrying out activities undertaken by Operating Entities have been granted a maximum transitional period of 3 years to regularize their status.

There is a blanket requirement for all entities licensed by the FSA under the Securities Law and New Regulation to ensure FSA regulated activities are not combined with any other activities. This segregation is required to prevent issues of conflicts of interest.

In particular, the New Regulation adopts a clearer principle of institutional separation between commercial banking and securities activities. Therefore, Operating Entity activities undertaken by a Central Bank of Oman (CBO) licensed bank must be through a separate entity wholly owned by the bank.

This requirement does not apply to the bank’s securities business of custody, trust, and underwriting activities. These activities do not need to be segregated, and the banks may continue to undertake these activities alongside their commercial banking business.

The New Regulation authorises the FSA to license financial technology services and activities involving innovative financial instruments that are not yet governed by specific legislation.

The FSA have confirmed that this will be through a regulatory sandbox operating under flexible criteria established by the FSA in line with market requirements and the evolving nature of such products.

Whilst the Previous Regulation simply assumed the existence of CMIs, the New Regulation now explicitly licenses CMIs. This is supported by a comprehensive foundational framework which ensures adequate licensing, regulatory compliance and supervision.

The following CMIs must apply for and obtain a licence from the FSA:

• Exchange Institution
• Depository Institution
• Clearinghouse
• Settlement Institution
• Central Counterparty

This development can unlock new opportunities for Oman. A standalone licensing framework for CMIs can enable the entry of new market participants which will promote Oman’s financial service offering, attracting new investment opportunities both local and foreign.

Whilst the Previous Regulation simply referred to the existence of investment banking, the New Regulation sets out the precise scope of investment banking activities, making it a distinct regulated activity:

• Investment Manager
• Product Structuring
• Securities Portfolio Management
• Research and Advisory Services Relating to Investments in Listed Securities
• Issue Management

There has been a longstanding overlap between the CBO and the FSA concerning jurisdiction over investment banking activities. Whilst the overlap remains. Article 40 of the New Regulation is a significant development as it clarifies and strengthens the supervisory role which the FSA also plays in regulating investment banking activities.

The New Regulation enhances and tightens the framework for regulating and registering domestic and international credit rating agencies in Oman. The FSA expects the framework to strengthen Oman’s credit rating ecosystem, develop local expertise and knowledge, enhance the credibility of credit assessments in the Omani market, improve risk assessment practices, and support investors and decision makers.

This will also support in developing Oman’s debt capital market.

The New Regulation expressly recognises 11 different investment funds. This is substantially different to the previous regime, which followed a fragmented and uncodified approach.

• Securities Mutual Fund
• Money Market Fund
• Real Estate Investment Fund
• Debt Instruments Fund
• Holding Fund
• Exchange-Traded Fund
• Venture Capital Fund
• Private Equity Fund
• Waqf Fund
• Green Fund
• Sustainable Purposes Fund

This opens Oman up to a wider range, providing a real opportunity for both local and foreign investment.

Throughout the New Regulation, the FSA are taking a stricter, detailed and nuanced approach to the licensing and supervision of CMIs and Operating Entities. This is evidenced by new provisions throughout the New Regulation mandating the need for a comprehensive set of documents, processes and frameworks (among others) when both applying for a licence and ensuring continued compliance once licensed. Whilst the Previous Regulation required these to be in place, the New Regulation requires substantially more.

In particular the FSA have clarified that they have transitioned to a “risk-based supervision” approach, tightening requirements regarding capital adequacy reporting, the management of market, credit and operational risks, business continuity planning and other prudential requirements.