? Why Does The Saudi CMA Regulate Corporate Finance Advisory As Part Of “Arranging”?

The CMA definition of Arranging includes where a person:

“introduces parties in relation to offering of securities or arrangement of its underwriting, or advises on corporate finance business.”

At first glance, “corporate finance advisory” may sound like ordinary consulting.

It is not.

? Corporate finance advisory typically covers:

• M&A transactions

• Equity capital raising

• Private placements

• Valuations

• Deal structuring

• Shareholder exits

• Capital restructuring

• IPO and listing preparation

The key point is that this advice is often directly connected to a transaction involving a company’s capital or securities.

That is why the CMA brings it within the regulatory perimeter.

? A corporate finance adviser can materially influence:

• whether securities are issued or sold;

• how a transaction is structured;

• the valuation at which investors enter or exit;

• which investors are approached; and

• the terms on which the transaction proceeds.

This is different from ordinary management consulting.

? A simple example:

If I advise a company on improving profitability, restructuring operations or developing its business strategy, that is generally management consulting.

If I advise the same company on selling 30% of its shares to a strategic investor, valuing that stake, structuring the transaction and approaching investors, I have moved into corporate finance advisory.

?? There is also a conflict-of-interest dimension.

Corporate finance advisers may receive success fees, represent sellers while approaching investors, influence valuations or shape information provided to potential investors.

The CMA therefore wants such advisers to be subject to appropriate standards of competence, conduct, conflict management and regulatory oversight.

? Another useful distinction:

Investment advice is generally about whether a client should invest in a particular security.

Corporate finance advice is generally about a company or its shareholders undertaking a transaction involving the company’s capital or securities.

That is why the former falls under Advising, while corporate finance advisory is captured within Arranging.

? The underlying principle is straightforward:

Corporate finance advisory is regulated because it can directly influence the creation, sale, acquisition or restructuring of securities and therefore impact investors and capital markets.

The practical point is equally important:

Not every piece of financial or strategic advice is “corporate finance business”.

The regulatory line is generally crossed when the mandate becomes sufficiently connected to a securities or capital transaction.

This distinction is particularly important for accounting firms, transaction advisers, strategy consultants, valuation firms and other professional advisers operating around capital markets.