SAMA seeks public input on draft banking law

The Saudi Central Bank’s (SAMA) headquarters

The Saudi Central Bank (SAMA) seeks public comments on the draft banking law. through the National Competitiveness Center's Public Consultation Platform (Istitlaa).

In a statement today, Jan. 26, SAMA said the draft law was prepared to keep abreast of the latest developments in the banking sector. The move aims to ensure stability and growth of the banking sector, encourage investment in the sector, contribute to financial stability in the Kingdom, and promote protection of depositors and consumers.

Public consultation on the draft law will be open for 30 days.

All views and comments will be subject to assessment to submit the final draft to the regulatory authority.

The draft law was based on ongoing internal evaluations. It came as part of SAMA’s keenness to align with the legislative developments of the countries benchmarked to benefit from when the provisions of the law were made.

It was developed in accordance with the recommendations issued by relevant international organizations. Moreover, SAMA indicated that the draft law is expected to continue regulating the banking sector effectively just as the current Banking Control Law does.

The highlights of the draft law include expanding the definition of banking business to explicitly cover credit granting in a separate article due to its importance. This is besides determining precisely the objectives and scope of the law and expanding its spectrum to include practicing banking business by persons outside the Kingdom to domestic residents as determined by SAMA, mainly to ensure consumer protection.

The bill also enhances the legal framework of the Deposit Protection Fund (DPF), under which the fund compensates depositors according to the announced protection limit when required, to protect depositors and contribute to financial stability. It also enhances banking secrecy framework in the Kingdom through the application of secrecy obligation as a general rule, with a number of limited exceptional cases, which will be precisely defined in the legislation.

Moreover, a legal framework will be established to regulate financial technology (fintech) in the banking sector under general and special provisions covering digital banking, open banking, regulatory technology (RegTech), big data, etc., with the violations, crimes and penalties framework being updated.

General changes:

1) Introduce some amendments to definitions, expanding that of banking business in a single article to exclusively state granting credit;

2) Transfer the details of most financial requirements, such as capital, to executive regulations. The key and necessary details in the draft law, such as the statutory deposit, liquidity reserve and statutory reserve for banks, were kept;

3) Allow SAMA to license the practice of banking business;

4) Update the violations, crimes and penalties framework;

5) Introduce a new element related to the DPF, allowing the latter’s repayment of qualified deposits, based on the announced protection limit, in case of failure of any national bank to do so;

6) Add a new chapter on banking secrecy through the application of secrecy obligation as a general rule with a number of limited exceptional cases, which will be precisely defined in legal framework.

Deposit Protection Fund

Article 36 of the draft law states that SAMA shall establish the DPF to protect depositors and contribute to financial stability in the Kingdom. The fund shall report to and be monitored by SAMA, being a legal entity with financial, operational and administrative independence.

Article 37 of the draft law stipulates that recipients of deposits and funds shall be members of the programs operated by the fund. They shall pay any financial consideration determined by the fund.

Article 38 of the law entails that DPF shall issue the regulations of the fund and its business, such as the regulatory framework applying to its members, committees, executive management and employees, finance workers and auditors.

Article 39 of the draft law states that the fund shall be responsible for repaying deposits based on the announced protection limit, in event of the bank’s failure to do so.

The fund has the right to access any information from the liquidator in case any party of those practicing this activity fails to receive and get deposits and funds.

To view the draft law, click here (Link).