Out-Law News 1 min. read

Saudi Arabia Monetary Authority updates banking licensing guidelines


Financial regulator the Saudi Arabia Monetary Authority (SAMA) has updated its guidelines for those seeking a banking licence, in a bid to encourage new entrants to the sector.

The announcement comes at a time when direct foreign investment in the Kingdom of Saudi Arabia (KSA) is expected to increase in line with the government's 'Vision 2030' plan to diversify its income resources away from dependence on oil, in order to promote a sustainable economy and turn the country into a "global investment powerhouse", according to financial services expert Tom Bicknell of Pinsent Masons, the law firm behind Out-Law.com.

The revised guidelines (9-page / 633KB PDF) set out SAMA's minimum licensing criteria for applicants seeking to carry out banking business in the KSA. In particular, they set out general guidelines, the minimum criteria to be addressed by applicants, the application procedures and the required information that firms must submit with their application.

The guidelines also expressly allow for foreign banks to apply to establish branches in the KSA, with the parent foreign bank as the applicant. Foreign bank branches are subject to the same legislative and prudential requirements as locally-incorporated banks except where expressly stated in SAMA's prudential standards. They are not required to maintain capital in the KSA although SAMA reserves the right to set capital requirements on a case by case basis, particularly if the foreign bank branch intends to conduct high-risk business or wishes to specialise in particular business lines that require specific levels of capacity or competence.

Responsibility for foreign bank branch operations in the KSA is primarily the responsibility of the branch's local management, as well as the foreign bank branch's home supervisor, according to the guidelines. The foreign bank branch must also comply with KSA law. In addition, foreign bank branch applicants must obtain written consent from their home supervisory to establish banking operations in the KSA before an application for a licence will be considered.

Tom Bicknell said that although the guidelines did not specify what activities and business lines may expose foreign bank branches to capital requirements, "we would expect SAMA to impose local capital adequacy requirements on foreign bank branches conducting banking business which may impact a large number of consumers or could impact the financial stability of the wider Saudi Arabia market – for example, provision of credit and deposit-taking activities".

"At last count, we understand there are 13 domestic banks licensed to operate in the KSA, with around 11 foreign banks licensed to operate foreign bank branches. These figures may change as a result of the announcement and new guidelines, and as the country moves closer to implementing its Vision 2030," he said.

SAMA intends to carry out a public consultation on updating its rules for opening bank accounts and the general rules for their operation in commercial banks in the KSA soon, its governor has said.

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