Introduction to the CMA and Corporate Governance Regulations

The Regulatory Framework for Governance in the Saudi Capital Market

First: Introduction

The Corporate Governance Regulations (CGR) issued by the Capital Market Authority (CMA) form the cornerstone of governance for joint-stock companies listed on the Saudi capital market (Tadawul). These Regulations were issued in their current form by CMA Board Resolution No. (8-16-2017) dated 16/05/1438H corresponding to 13/02/2017G, and have been subject to multiple substantive amendments, most notably in 2021, 2023, and 2024 to align with the new Companies Law issued by Royal Decree M/132.

These Regulations are not merely a legal document, but a charter defining the relationship between the listed company and all stakeholders: shareholders, board members, executive management, employees, and society. They aim to entrench the principles of transparency, fairness, accountability, and responsibility in corporate management. Compliance is not optional but a legal obligation, and violations may result in penalties up to suspension of listing. This article reviews the establishment of the Authority, the evolution of the Regulations, their objectives, and their overall structure.

💡  Key Insight The Corporate Governance Regulations are not a regulatory burden but a value-creation tool. Companies committed to high governance standards achieve higher market valuations, attract greater foreign investment, and enjoy deeper investor trust. Good governance is an investment, not a cost.

Second: Establishment of the Capital Market Authority

1. Creation and Powers

The CMA was established under the Capital Market Law issued by Royal Decree No. (M/30) dated 2/6/1424H corresponding to 31/7/2003G:

• Independent government entity: with independent legal personality.
• Affiliated with the Prime Minister: and reports to him.
• Headquarters: Riyadh.
• Enjoys financial and administrative independence: to ensure its neutrality.

2. Strategic Objectives

The Authority has specified objectives under the Law:

• Regulating and developing the capital market and issuing necessary regulations and rules.
• Protecting investors from unfair practices.
• Achieving fairness, efficiency, and transparency in securities transactions.
• Developing procedures to reduce risks.
• Regulating comprehensive disclosure of information.
• Protecting investors and dealers from unfair trading (fraud, insider trading, manipulation).
• Regulating and developing investment in securities.

2. Regulatory Powers

The Authority has broad powers:

2.1 Legislative Powers

• Issuing regulations, rules, and instructions.
• Amending and interpreting them.
• Granting approvals and exemptions.

2.2 Supervisory Powers

• Overseeing the capital market and its components.
• Inspection and auditing.
• Investigating complaints and violations.

2.3 Penal Powers

• Imposing fines.
• Suspension from work.
• Cancellation of licenses.
• Referral to the Public Prosecution.

3. Organizational Structure

The Authority has a clear structure:

• CMA Board: the supreme authority, consisting of five members appointed by the King.
• Chairman of the Board: with ministerial rank.
• Executive Management: specialized departments (Disclosure, Investigation, Supervision, and others).

Third: Evolution of the Corporate Governance Regulations

1. The Initial Emergence (2006)

The Kingdom’s first corporate governance regulations were issued in 2006:

• Indicative in nature.
• General principles.
• Voluntary application.
• First step toward a formal framework.

2. The Adopted Regulations (2017)

The current Regulations were issued in 2017, marking a qualitative leap:

• Binding for most provisions.
• 83 organized articles.
• Comprehensive coverage of all governance aspects.
• Alignment with international standards.

3. 2021 Amendments

Amendments to strengthen internal control:

• Converting some internal audit articles from indicative to binding.
• Strengthening training requirements for board and executive management.
• Clarifying independence cases for board members.
• Strengthening conflict of interest treatment.

4. 2023-2024 Amendments

Following the issuance of the new Companies Law (M/132):

• Increasing board membership term from 3 to 4 years.
• Transferring the authority to form the audit committee from the General Assembly to the Board.
• Implementing additional requirements on Parallel Market (Nomu) companies effective 1 January 2024.
• New requirements for appointing and dismissing the internal auditor.
• Mandatory training requirements for board members and executive management.
• Periodic meetings of the audit committee with auditors.

5. Development Initiative (2024-2026)

Within the Authority’s 2024-2026 strategic plan:

• “Development of Corporate Governance Regulations” initiative.
• Scheduled for completion by 2026.
• Goal: keeping pace with the latest international standards.
• Enhancing market attractiveness to global investors.

📌  Note The evolution of corporate governance regulations in the Kingdom from a simple indicative document to a comprehensive binding framework reflects the regulatory maturity of the Saudi capital market, which was crowned by the market’s inclusion in the MSCI Emerging Markets Index in 2019. Today, the Saudi capital market is one of the largest in the region, and the Governance Regulations are the cornerstone of this position.

Fourth: Objectives of the Governance Regulations

1. General Objectives

Article (2) of the Regulations states its objectives:

• Establishing sound governance rules in listed companies.
• Entrenching the principles of transparency, integrity, fairness, and accountability.
• Regulating relationships between stakeholders in the company.
• Protecting the rights of shareholders and stakeholders.
• Defining the duties of the board and executive management.
• Enhancing the effectiveness of the board and developing the skills of its members.

2. Detailed Objectives

2.1 Protecting Shareholder Rights

• Ensuring equality of shareholders.
• Providing sufficient information for decision-making.
• Facilitating participation in assemblies.
• Protecting minority rights.

2.2 Enhancing Board Effectiveness

• Board independence.
• Diversity of expertise.
• Training and development.
• Performance evaluation.

2.3 Ensuring Transparency

• Full and accurate disclosure.
• Timely disclosure.
• Quality of information.
• Ease of access.

2.4 Risk Management and Control

• Effective internal control system.
• Integrated risk management.
• Independent internal audit.
• Strong audit committee.

2.5 Protecting Stakeholders

• Employees.
• Customers.
• Suppliers.
• Society and the environment.

Fifth: Scope of Application

1. Addressed Companies

The Regulations apply to:

• Listed joint-stock companies: on the Main Market (Tadawul).
• Companies listed on the Parallel Market: (Nomu) starting from 2024 with amendments.
• Indicatively: for non-listed companies.

2. Main Market vs Parallel Market

Aspect	Main Market	Parallel Market (Nomu)
Target companies	Large and medium	Emerging and SMEs
Listing requirements	Strict	Less strict
Application of Governance Regulations	Full since 2017	Gradual, completed 2024
Disclosure requirements	Full	Graduated
Investor type	Individuals and institutions	Mostly qualified only

3. Partially Exempt Categories

• Companies applying additional sectoral requirements: such as banks (SAMA framework), insurance (Insurance Authority).
• In case of conflict: the stricter requirements apply.
• Integration: between regulatory frameworks.

Sixth: Structure of the Regulations

1. Main Divisions

The Regulations consist of 9 chapters:

Chapter	Subject	Articles
First	Preliminary provisions	1-2
Second	Shareholder rights and Assembly	3-9
Third	Board of Directors	10-30
Fourth	Committees	50-67
Fifth	Executive Management	68-71
Sixth	Internal Control	72-79
Seventh	Disclosure and Transparency	84-93
Eighth	Stakeholders	80-83
Ninth	General and Concluding Provisions	94-98

2. Types of Articles

2.1 Binding Articles

The largest portion of the Regulations:

• Mandatory commitment.
• Violations require penalties.
• Monitored by the Authority.

2.2 Indicative Articles

A limited number of articles:

• “Comply or Explain” approach.
• The company applies or discloses the reasons.
• Flexibility in application according to company size.

2.3 Transition from Indicative to Binding

A clear trend:

• Gradual conversion of articles to binding.
• Raising the general level of governance.
• Keeping pace with international standards.

Seventh: Fundamental Principles of Governance

1. Transparency

“Clarity of information and ease of access”:

• Full disclosure of material information.
• Timely disclosure.
• Accuracy and comprehensiveness.
• Ease of understanding.

2. Integrity

“Avoiding conflicts of interest”:

• Fair treatment of all shareholders.
• Avoiding insider trading.
• Disclosing interests.
• High professional conduct.

3. Fairness

“Equal treatment”:

• Equality among shareholders.
• Protection of minority.
• Respect for rights.
• Non-discrimination.

4. Accountability

“Defining responsibilities and accountability”:

• Clear responsibilities for the Board.
• Accountability of executive management.
• Commitment to objectives.
• Measurable results.

5. Responsibility

“Commitment to stakeholders”:

• To shareholders.
• To employees.
• To customers and suppliers.
• To society and the environment.

Eighth: Relationship with Other Regulations

1. Companies Law (M/132)

The higher legislative framework:

• The Companies Law sets general principles.
• The Governance Regulations elaborate and expand for listed companies.
• Full integration between the two.
• In conflict: the special case is considered.

2. Capital Market Law (M/30)

The legislative framework for the market:

• The Capital Market Law gave the Authority its powers.
• The Governance Regulations are applications of these powers.
• Full integration.

3. Other Authority Regulations

3.1 Listing Rules

• Stock listing conditions.
• Continuing obligations requirements.

3.2 Offer of Securities and Continuing Obligations Rules

• Issuance.
• Offering.
• Disclosure.

3.3 Market Conduct Regulations

• Preventing insider trading.
• Preventing price manipulation.
• Special disclosures.

3.4 Merger and Acquisition Regulations

• Merger requirements.
• Acquisition requirements.
• Protection of minority shareholders.

4. Other Sectoral Regulations

• Banking Law (SAMA Framework).
• Insurance Law (Insurance Authority).
• Family Companies Law.

Ninth: Compliance and Disclosure

1. “Comply or Explain” Principle

1.1 The Idea

For indicative articles:

• The company complies with the article.
• Or discloses the reason for non-compliance.
• Disclosure must be justified and detailed.
• Transparency is more important than formal compliance.

1.2 Practical Application

• In the annual board report.
• Mentioning non-applied articles.
• Reasons for non-application.
• Plans to address the situation.

2. Compliance Report

A fundamental requirement:

• Within the annual report.
• Reviewing compliance with each article.
• Detailed.
• Approved by the Board.

3. Compliance Review

3.1 Self-Review

• By the company.
• Annually.
• Comprehensive for all articles.

3.2 External Review

• By an independent reviewer (optional in most cases).
• To enhance credibility.
• Upon Board request.

3.3 Authority Oversight

• Periodic monitoring.
• Reviewing reports.
• Investigations when needed.

Tenth: Benefits for Compliant Companies

1. Financial Benefits

1.1 Higher Market Valuations

Global studies confirm:

• Governance-compliant companies trade at higher valuations.
• Governance premium ranges between 10-25%.
• Higher attractiveness to investors.

1.2 Lower Cost of Financing

• Ease of obtaining loans.
• Better financing terms.
• Low cost of capital.

1.3 Attracting Foreign Investment

• Foreign institutions require strong governance.
• Attracting global investment funds.
• ESG rankings.

2. Strategic Benefits

• Better decision-making.
• Effective risk management.
• Long-term sustainability.
• Resilience in crises.

3. Operational Benefits

• Clear organizational structure.
• Defined accountability.
• Operational efficiency.
• Quality in execution.

4. Societal Benefits

• Trust in the market.
• Economic stability.
• Sustainable development.
• Alignment with Vision 2030.

Eleventh: The Governance Regulations and Vision 2030

1. Shared Objectives

1.1 Capital Market Development

Vision 2030 targets:

• More developed capital market.
• Attractive to foreign investors.
• Aligned with international standards.
• Governance Regulations are part of this goal.

1.2 Privatization

• Offering government companies like Aramco and others.
• Strong governance is a basic requirement.
• Investor confidence is a condition.

1.3 Attracting Foreign Investment

• Goal of growing foreign investment.
• Governance is a decisive factor.
• Alignment with MSCI and other indices.

2. Supporting Initiatives

• Joining MSCI Emerging Markets Index (2019).
• Joining FTSE Russell Index.
• Expanding the Parallel Market (Nomu).
• Developing investment funds.

3. Future Developments

Within the 2024-2026 plan:

• Comprehensive Governance Regulations development.
• Strengthening ESG requirements.
• Updating disclosure requirements.
• Leveraging technology.

Twelfth: Common Challenges

1. “Formal Compliance” Challenge

Some companies apply the letter without the spirit:

• Box-ticking without understanding.
• Compliance only to avoid penalties.
• Absence of added value.
• Solution: adopting governance philosophy, not form.

2. “Perceived Cost” Challenge

Some companies see governance as a burden:

• Committee costs.
• Disclosure costs.
• Auditor costs.
• Solution: measuring the return, not just the cost.

3. “Regulation Updates” Challenge

Continuous amendments require keeping pace:

• Continuous training.
• Updating policies.
• Following changes.
• Solution: specialized governance officer.

4. “Human Resources” Challenge

Shortage of specialized competencies:

• Qualified board members.
• Board secretaries.
• Governance officers.
• Solution: investing in qualification and training.

Thirteenth: Best Practices for Compliance

1. At the Strategy Level

• Full adoption: of governance philosophy.
• Role model from the top: Board and management.
• Investment: in resources and competencies.
• Long-term vision: not just compliance.

2. At the Structure Level

• Board secretary: specialized and independent.
• Governance Officer: in large companies.
• Governance Committee: (optional but recommended).
• Comprehensive policies: documented and updated.

3. At the Application Level

• Annual review: of compliance with each article.
• System development: to support disclosure and documentation.
• Continuous training: for members and management.
• Consultations: external when needed.

4. At the Disclosure Level

• Comprehensive report: in the annual report.
• Full transparency: including challenges.
• Appropriate timing: for all requirements.
• High quality: in content and form.

Conclusion

The Corporate Governance Regulations issued by the Capital Market Authority are not merely a regulatory document, but a charter for building trust in the Saudi capital market. The Regulations have evolved from a simple indicative framework in 2006 to a comprehensive binding system today, keeping pace with the latest international standards and harmonizing with the Kingdom’s Vision 2030. Compliance is not a regulatory burden but an investment in the company’s future, opening doors to global markets, attracting investments, and building long-term trust.

Leading Saudi companies no longer view governance as a minimum compliance standard, but as a competitive advantage. They apply the highest standards, exceed minimum requirements, and lead in disclosure and transparency. This trend reflects the regulatory maturity of the Saudi capital market, confirming its position as one of the largest markets in the region. With the ongoing Regulations development initiative through 2026, the Kingdom is preparing for a new stage of governance — more developed, more rigorous, and more integrated with global standards. The smart leader prepares now, develops capabilities, and builds the necessary framework to embrace the future.

🎯  Essential Points to Remember (1) The Corporate Governance Regulations were issued by the Capital Market Authority under its powers from the Capital Market Law (M/30). (2) The current Regulations were issued in 2017, subject to amendments in 2021, 2023, 2024, and a development initiative completing in 2026. (3) The Authority is an independent government entity with legislative, supervisory, and penal powers. (4) The Regulations apply to companies listed on the Main Market, and gradually to companies in the Parallel Market (Nomu). (5) Structure of the Regulations: 9 chapters, about 98 articles, covering all governance aspects. (6) Types of articles: binding and indicative with “Comply or Explain” approach. (7) Fundamental principles: transparency, integrity, fairness, accountability, responsibility. (8) Compliance benefits: higher valuations, lower financing cost, attracting foreign investment. (9) Aligned with Vision 2030: market development, privatization, attracting investment. (10) Best practice: adopting governance philosophy, not just formal compliance.

Contact Us

FAQS

When was the current Corporate Governance Regulations (CGR) issued and what was the legal basis?

The current Regulations were issued by CMA Board Resolution No. (8-16-2017) dated 16/05/1438H corresponding to 13/02/2017G, building on the powers granted to the Authority under the Capital Market Law issued by Royal Decree No. (M/30).

What is the legal status and organizational structure of the Capital Market Authority?

The CMA is an independent government entity with its own legal personality, affiliated with the Prime Minister, headquartered in Riyadh, and enjoys financial and administrative independence. It is governed by a five-member Board appointed by the King, chaired by a member with ministerial rank, supported by specialized executive departments.

How did corporate governance regulations evolve in Saudi Arabia from 2006 to today?

They began as indicative voluntary principles in 2006, then took a qualitative leap in 2017 with 83 binding articles aligned with international standards, followed by amendments in 2021 to strengthen internal control, and major amendments in 2023-2024 to align with the new Companies Law (M/132).

References and Sources

• Corporate Governance Regulations issued by the CMA Board Resolution No. (8-16-2017) and its amendments.
• Capital Market Law issued by Royal Decree M/30 dated 2/6/1424H.
• Companies Law issued by Royal Decree M/132.
• Amendments to Corporate Governance Regulations (2023, 2024).
• CMA Strategic Plan 2024-2026.
• OECD Corporate Governance Factbook 2025 — Saudi Arabia.
• Baker McKenzie — Amendments to CMA Implementing Regulations.
• PwC — Saudi Arabia Corporate Governance Regulations Analysis.
• Certified Governance Institute — Saudi Governance Regulations Guides.
• Saudi Vision 2030 — Economic and Financial Transformation.