Banking Law and Mis-Selling of Financial Products in Kuwait

1. Introduction

Mis-selling of financial products occurs when a bank, investment company, broker, investment adviser or other financial institution sells or recommends a financial product in circumstances where the customer receives misleading information, inadequate risk disclosure, unsuitable advice, false assurances or other improper treatment.

Products capable of creating mis-selling disputes in Kuwait include:

investment funds;

investment portfolios;

shares and bonds;

sukuk;

structured investments;

financing products;

securities-linked products;

complex investment arrangements; and

other products offered through banks or licensed investment businesses.

Kuwait does not have one statute called the Financial Products Mis-Selling Act. Instead, protection comes from several overlapping regimes.

For securities and investment products, the most important legislation is Law No. 7 of 2010 concerning the Capital Markets Authority and Regulating Securities Activities, as amended. Article 66 contains particularly important investor-protection duties.

For banking products, the Central Bank of Kuwait (CBK) maintains customer-protection requirements dealing with fair treatment, disclosure, complaints and banking conduct. The CBK updated its Consumer Protection Guide in October 2025.

2. Meaning of Mis-Selling

Mis-selling is broader than outright fraud.

Consider a customer who asks for a relatively conservative investment.

A financial adviser recommends a high-risk structured product but describes it as:

“Almost guaranteed and completely safe.”

Even if the product itself is legitimate, the way it was recommended and explained may create legal problems.

Mis-selling can therefore arise through:

False statements — inaccurate information concerning the product.

Material omissions — failure to disclose important risks.

Unsuitable recommendations — recommending securities inconsistent with the customer's circumstances.

False guarantees — promising returns or protection against loss where no such guarantee exists.

Conflict-driven selling — recommending a product principally because it produces commissions or other benefits.

Inadequate disclosure — providing documents without adequately communicating material characteristics and risks where the law requires more.

3. Capital Markets Authority Framework

Law No. 7 of 2010 created Kuwait's Capital Markets Authority (CMA) and provides the principal securities-market regulatory framework.

The law regulates persons conducting activities such as:

securities brokerage;

investment advice;

investment portfolio management;

collective investment management;

custody; and

other regulated securities activities.

An investment portfolio is expressly recognised as a client account containing cash, securities or other assets and can be managed by a licensed portfolio manager or by the client.

This matters because many mis-selling disputes arise when customers allow financial professionals to recommend or manage investments.

4. Article 66 — The Central Investor-Protection Provision

Article 66 of Law No. 7 of 2010 is particularly important.

A person licensed to manage securities activities must comply with specified conduct requirements.

These include protecting client assets, maintaining appropriate systems and—critically—having reasonable justification for believing that securities recommended to a client are appropriate for that client.

This provides a clear statutory basis for analysing unsuitable recommendations.

The legal question is not simply:

“Was the investment legally available?”

It can also be:

“Did the licensed person have reasonable grounds for believing this security was appropriate for this customer?”

5. Prohibition on Guaranteed Returns

Article 66 contains another especially important rule.

A licensed person must not promise a customer a certain return or guarantee that the customer will not suffer a loss unless the nature of the relevant security genuinely provides for that result.

This is directly relevant to mis-selling.

Suppose an adviser sells a risky investment fund while saying:

“You cannot lose money.”

If the product does not actually guarantee capital, the representation conflicts with the statutory investor-protection principle.

Financial institutions therefore need to distinguish carefully between:

expected return

and

guaranteed return.

6. Appropriateness of Recommendations

Article 66 effectively creates an appropriateness requirement for securities recommendations.

A recommendation should have reasonable grounds connecting the product to the customer.

Relevant factors can include:

investment objectives;

financial circumstances;

investment knowledge;

risk appetite;

investment horizon; and

characteristics of the security.

The precise assessment depends upon the service and applicable CMA rules.

A product suitable for an experienced institutional investor may be inappropriate for an inexperienced retail customer.

7. Disclosure of Risk

Financial products can expose customers to different forms of risk:

Market risk — investment prices may fall.

Credit risk — issuer or counterparty may default.

Liquidity risk — the investment may be difficult to sell.

Currency risk — exchange-rate movements may affect value.

Concentration risk — excessive exposure to one investment or sector.

Leverage risk — borrowed exposure can magnify losses.

Mis-selling can arise when significant risks are concealed or materially understated.

The fact that a customer signs documentation does not necessarily answer every dispute concerning what was represented during the sale.

The entire transaction and applicable legal obligations must be considered.

8. CBK Customer Protection

Where financial products are distributed through banks, the CBK customer-protection framework also becomes important.

The CBK describes customer protection as requiring measures that mitigate risks arising from dealings with banks and emphasises:

integrity;

disclosure;

customer rights;

financial awareness;

objective advice; and

professional conduct.

The CBK's materials specifically recognise that innovative or structured financial products can contain risks that customers may be unable to assess properly without adequate information.

This principle is directly relevant to financial-product mis-selling.

9. Fair Treatment

A fundamental consumer-protection concept is fair treatment.

Banks should not exploit major information differences between themselves and their customers.

A financial institution normally understands:

product structure;

pricing;

embedded fees;

investment risks;

early-exit consequences; and

conflicts of interest

far better than an ordinary customer.

Customer-protection rules therefore seek to prevent this information imbalance from producing unfair outcomes.

10. Complex Products

Complex financial products create particularly high mis-selling risks.

Suppose an investment contains:

derivatives;

leverage;

conditional returns;

early redemption provisions; and

capital-loss triggers.

Calling the product:

“Premium Income Investment”

does not explain those risks.

The institution must comply with applicable disclosure and conduct requirements rather than relying upon an attractive commercial name.

11. Investment Portfolios

Portfolio-management relationships deserve particular attention.

Under Law No. 7 of 2010, an investment portfolio can contain cash, securities or other client-owned assets held with a licensed person authorised to conduct portfolio management.

The distinction between:

customer-owned assets

and

financial institution's own assets

is crucial.

Article 66 prohibits misuse of client funds or securities, while CMA reforms have continued to strengthen segregation of client assets. In 2024, the CMA amended its rules specifically to reinforce the separation of client assets from assets belonging to licensed persons.

12. Excessive Trading

Mis-selling can continue after the initial investment.

Article 66 prohibits excessive purchases and sales in a client's account.

This addresses the problem commonly known as churning.

For example, an investment manager might repeatedly trade securities principally to generate commissions rather than improve the customer's investment position.

Therefore, investor protection applies not only when the product is initially sold but also during subsequent portfolio management.

13. Excessive Commissions

Article 66 also restricts licensed persons from collecting excessively high commissions or offering improperly high discounts in securities transactions.

Fees can contribute to mis-selling where they create incentives to recommend products that are profitable for the distributor but unsuitable for the customer.

A sound sales process should therefore distinguish:

customer benefit

from

seller compensation.

14. Conflicts of Interest

Consider a banking group that:

creates an investment fund;

manages the fund;

distributes the fund through affiliated channels; and

earns management and distribution fees.

The institution has a commercial incentive to sell its own product.

That does not automatically make the sale unlawful.

But conflicts must be appropriately controlled so that the customer's interests are not displaced by the institution's commercial incentives.

15. False Statements and Fraud

Serious mis-selling may move beyond regulatory non-compliance into ordinary civil or potentially criminal questions where deliberate deception is established.

There is an important distinction between:

investment loss

and

fraud.

A customer losing money does not automatically prove mis-selling.

Financial investments naturally involve risk.

Liability requires examination of matters such as:

representations made;

contractual documentation;

regulatory duties;

customer's instructions;

suitability or appropriateness;

causation; and

actual loss.

16. Case Law Principle 1 — Contract Governs the Financial Relationship

Kuwaiti Court of Cassation jurisprudence generally gives substantial importance to the contractual documents governing banking and investment relationships.

Courts examine the actual agreement to determine:

obligations;

authority;

investment mandate;

repayment rights;

fees; and

allocation of risk.

Mis-selling significance

A customer claiming that a product was represented as capital-protected may rely upon evidence concerning both the written documentation and representations made during the sales process.

The institution, conversely, may rely upon clearly documented risk warnings and customer instructions.

17. Case Law Principle 2 — Substance Over Commercial Description

A recurring principle of Kuwaiti commercial jurisprudence is that courts determine the legal character of transactions from their real substance and contractual obligations rather than relying only on the label selected by the parties.

Mis-selling significance

A financial institution cannot necessarily avoid investor-protection obligations merely by describing an investment as:

“deposit,”
“savings programme,”
“wealth solution,” or
“capital opportunity”

if its actual legal characteristics are different.

The true product must be identified before the applicable duties can be determined.

18. Case Law Principle 3 — Portfolio Manager's Authority Is Limited by the Mandate

Kuwaiti investment-portfolio jurisprudence distinguishes ownership of client assets from the portfolio manager's contractual authority to manage those assets.

The manager does not automatically become the owner of the customer's securities.

Mis-selling significance

A discretionary portfolio manager must operate within the legally and contractually authorised mandate.

If a conservative mandate is given but the portfolio is invested in materially inconsistent high-risk instruments, questions of contractual and regulatory liability can arise.

This principle corresponds with the statutory protection of client assets under Article 66.

19. Case Law Principle 4 — Investment Loss Does Not Automatically Establish Liability

Kuwaiti courts distinguish ordinary investment losses from losses resulting from actionable wrongdoing.

Financial markets fluctuate.

Therefore:

loss ≠ automatically mis-selling.

A claimant generally needs a legally relevant basis for liability.

That may involve:

breach of mandate;

misleading representations;

negligence;

contractual breach;

unauthorised transactions; or

violation of applicable statutory obligations.

Mis-selling significance

The customer's case becomes stronger where evidence connects the loss to the alleged breach rather than merely to market movements.

20. Case Law Principle 5 — Courts Assess Financial Evidence and Expert Reports

Complex Kuwaiti financial disputes frequently depend upon expert evidence.

Courts may need to examine:

account statements;

trading records;

investment agreements;

transaction confirmations;

correspondence;

calculations;

portfolio valuations; and

expert accounting reports.

Mis-selling significance

Documentation becomes essential.

A verbal allegation that an adviser promised a guaranteed return can be difficult to evaluate without supporting evidence.

Similarly, a financial institution should retain evidence showing what was explained and what the customer authorised.

21. Case Law Principle 6 — Causation and Loss Must Be Established

Kuwaiti civil and commercial liability principles require a legally relevant relationship between breach and damage.

Suppose an adviser fails to provide one required disclosure, but the investment later loses value because of an unrelated market collapse.

A court still needs to determine whether the relevant breach legally caused the claimed loss.

Mis-selling significance

A regulatory violation and a compensable civil claim are related questions, but they are not necessarily identical.

The customer must establish the elements of the relevant private-law cause of action.

22. Case Law Principle 7 — Guarantees and Representations Must Be Properly Characterised

Kuwaiti banking jurisprudence recognises that guarantees and related banking instruments have their own legal characteristics.

Mis-selling significance

A salesperson's statement:

“The bank stands behind this investment”

does not necessarily mean that the bank has legally guaranteed repayment.

A genuine guarantee should be distinguished from:

marketing language;

an issuer obligation;

investment-management responsibility; or

a forecast of expected performance.

This distinction is particularly important because Article 66 expressly restricts promises of guaranteed returns or freedom from loss.

23. Case Law Principle 8 — Regulatory Rules Limit Contractual Freedom

Kuwaiti commercial law generally recognises contractual freedom, but financial institutions cannot use private agreements to eliminate mandatory regulatory obligations.

Mis-selling significance

A clause stating:

“The customer accepts all risks”

does not automatically authorise a licensed investment firm to ignore statutory duties.

Article 66 continues to require reasonable grounds for believing recommended securities are appropriate and prohibits improper guarantees of return.

24. At Least Six Relevant Kuwaiti Judicial Principles

Because reliable public English reporting does not provide six clearly verifiable Court of Cassation judgments specifically called financial-product mis-selling cases, the safer legal approach is to use the established Kuwaiti jurisprudential lines applicable to such disputes:

Bank/customer contractual jurisprudence — contractual documentation defines the parties' financial relationship.

Substance-over-form jurisprudence — courts examine the real nature of financial transactions rather than relying only on product names.

Investment-portfolio jurisprudence — portfolio managers exercise authority under the investment mandate but do not thereby become owners of client assets.

Investment-loss jurisprudence — an unsuccessful investment does not itself prove negligence or mis-selling.

Financial-evidence jurisprudence — account records, transaction documents and expert reports are central to determining liability.

Causation jurisprudence — a claimant must connect actionable breach with legally recoverable loss.

Guarantee jurisprudence — legally enforceable guarantees must be distinguished from informal sales statements or expectations.

Mandatory-regulation jurisprudence — contractual freedom does not displace applicable mandatory financial regulation.

These provide more reliable legal analysis than assigning fabricated case numbers to disputes that cannot be verified in authoritative public sources.

25. Statutory Suitability Rule

The strongest direct legal provision is Article 66(5) of Law No. 7 of 2010.

It requires reasonable grounds for believing that securities recommended to a customer are appropriate for that customer.

This means that a licensed person should not simply ask:

“Can we sell this security?”

The institution should also consider:

“Do we have reasonable grounds for recommending it to this client?”

That distinction lies at the centre of modern mis-selling regulation.

26. Guaranteed-Return Example

Assume a customer invests KD 50,000.

The salesperson says:

“You will receive at least 8% every year and your KD 50,000 cannot fall.”

The actual product is an equity investment fund with no contractual capital guarantee.

The customer subsequently loses KD 15,000.

Relevant questions include:

Was the statement actually made?

Was the adviser authorised?

What did the written product documents state?

Was the customer warned about capital loss?

Was the investment appropriate for the customer?

Did the customer rely on the guarantee?

Did the misleading statement cause the investment decision?

Article 66's prohibition against unjustified promises of guaranteed returns would be particularly important.

27. Unsuitable-Product Example

Assume an elderly retail customer tells an adviser:

“I need this money next year and cannot afford a major loss.”

The adviser recommends a highly volatile long-term investment.

Even if every factual statement about the investment is technically accurate, the transaction may raise a different issue:

appropriateness of the recommendation.

Under Article 66, a licensed securities manager needs reasonable justification for believing that recommended securities are appropriate for the client.

Mis-selling therefore does not require a direct lie.

28. Complaints Against Banks

Kuwait also maintains a structured customer-complaint mechanism.

The CBK states that customers should initially submit complaints to the relevant regulated institution. Banks are currently required to respond in writing within five working days under the CBK's current customer-protection guidance. If the customer remains dissatisfied, an appeal can be made through the CBK process with the institution's response and supporting documents.

This administrative process should be distinguished from court proceedings.

The CBK states that it does not consider an appeal where the subject matter is already before a court or the Public Prosecution.

29. Banks Versus Investment Companies

Another important distinction concerns the regulator.

Traditional banking activities primarily fall within the CBK framework.

Securities activities are principally regulated through the CMA framework established by Law No. 7 of 2010.

Some financial groups can therefore operate under overlapping regulatory structures depending on the particular entity and product.

For example:

bank deposit → principally banking regulation.

investment portfolio → securities/investment regulation.

investment advice concerning securities → CMA framework.

The legal classification of the product must therefore come before the mis-selling analysis.

30. Customer Documentation

Financial institutions can reduce disputes by maintaining clear evidence concerning:

customer's investment objectives;

risk profile;

product characteristics;

risk disclosures;

investment recommendation;

fees and commissions;

customer's instructions;

transaction confirmations; and

subsequent communications.

Article 66 itself requires licensed securities businesses to provide transaction documents and account statements and maintain regular books and records.

Good recordkeeping therefore has both regulatory and litigation significance.

31. Potential Remedies

Depending upon the facts and legal basis, a mis-selling dispute can potentially produce several consequences.

These can include:

Regulatory consequences
The relevant regulator may investigate breaches of financial rules.

Contractual claims
A customer may allege breach of the investment or advisory agreement.

Civil damages
Compensation may be claimed where the necessary requirements for liability, damage and causation are established.

Invalidity or restitution arguments
These may arise where consent or the underlying transaction is legally defective, depending upon the facts and applicable Kuwaiti law.

Complaint proceedings
The customer may use the applicable CBK complaint mechanism for matters within its jurisdiction.

The availability of one remedy does not automatically establish entitlement to every other remedy.

32. Difference Between Investment Loss and Mis-Selling

This distinction is fundamental.

Normal investment loss

Customer understands the risks → suitable investment is purchased → market falls → customer suffers loss.

That is not automatically mis-selling.

Potential mis-selling

Customer requests low risk → adviser recommends unsuitable high-risk investment → important risks are concealed or materially misstated → customer invests and suffers related loss.

The second situation raises significantly different legal questions.

Therefore, courts and regulators need to examine the sales process, not merely the investment's eventual performance.

33. Current Regulatory Position

Kuwait continues to strengthen customer and investor protection.

The CBK issued an updated Consumer Protection Guide in October 2025, stating that the update was intended to strengthen transparent treatment of customer rights and reflect regulatory and technological developments.

The CMA also continues active supervision of securities businesses. Its framework remains based on Law No. 7 of 2010 and its Executive Bylaws, with investor protection among the core regulatory objectives.

Thus, mis-selling should no longer be viewed purely as a contractual dispute between seller and purchaser.

It can simultaneously involve:

contract law + civil liability + banking supervision + securities regulation + customer protection.

34. Conclusion

The mis-selling of financial products in Kuwait is governed by an overlapping system of banking law, securities regulation, contractual principles and customer-protection requirements.

For securities products, Article 66 of Law No. 7 of 2010 provides particularly strong rules. Licensed persons must have reasonable grounds for believing recommended securities are appropriate for the customer, must protect client assets, must avoid excessive trading and commissions, must provide transaction documentation, and cannot improperly promise guaranteed returns or freedom from loss.

For banking relationships, the Central Bank of Kuwait's customer-protection framework emphasises fair treatment, appropriate disclosure, professional conduct and mechanisms for handling customer complaints. The CBK updated its Consumer Protection Guide in 2025.

Kuwaiti judicial principles add the private-law dimension. Courts can examine the actual contractual relationship, substance of the financial transaction, scope of portfolio-management authority, evidence of representations, causation and resulting loss.

The central rule can therefore be expressed simply:

A financial institution is not liable merely because an investment loses money. But where a product is recommended without reasonable grounds for considering it appropriate, material risks are misrepresented or concealed, unauthorised transactions occur, or returns are improperly represented as guaranteed, the transaction can raise serious regulatory and civil mis-selling issues under Kuwaiti law.

Because publicly accessible authoritative reporting does not establish six clearly verifiable Kuwaiti Court of Cassation decisions specifically categorised as “financial-product mis-selling,” it is legally preferable to rely on the verified statutory rules and the established judicial principles above rather than inventing six case names or numbers.