المملكة: To enhance GDP .. “Sama” launches a fundamental update of the Funding Companies Regulations

The Saudi Central Bank, “Sama”, launched a comprehensive update project for the executive regulations of the financing companies monitoring system, in a strategic move that comes in line with the increase in the size and diversity of financing activities within the Kingdom.
The update aims to enhance the role of financing companies in supporting the local product, and organizing the sector in a manner that guarantees stability and sustainable growth.
This update coincides with the remarkable development in the financing sector, where the central bank explained that the new regulation aims to organize the requirements for practicing all financing activities within one framework, with the exception of some special requirements organized by independent rules issued by “Sama”.
The regulations seek to enable financing companies to increase the liquidity provided, which raises their contribution to the Kingdom’s domestic product, which is a trend that supports the national vision towards a diversified and sustainable economy.

Enhancing governance and reviewing organizational rulings

Among the most important axes dealt with by the update, an accurate review of the provisions related to the relevant parties, and the regulation of acquisitions and subtraction operations in the financial market, in addition to updating the standards imposed on the founders, members of the boards of directors and executives.
The project provided special support to the startups in the sector, by reducing the minimum bank guarantee required to only 20% of the lower capital of the activity, instead of 100% as it was previously used, a measure aimed at encouraging the entry of more new players into the market.

Licensing and practicing financing activities: new controls

The new regulation stressed the need to obtain an official license from the central bank before practicing any financing activity. She emphasized that every legal person authorized to practice one or more of the financing activities specified in the system will be subject to the provisions of the regulations, and it also completely prevents any financing activity without a license or in violation of the regulations.
As for the financing of goods and services, the regulation stressed the need to take place through licensed bodies only, while emphasizing the non -re -possession of the commodity sold to the consumer, which enhances consumer protection and ensuring the transparency of financing processes.

Real estate and consumer financing and small projects

The new regulation has allocated clear criteria for various activities, including: real estate financing: it is limited to the licensed bodies only, and microcosmalization: dedicated to buying goods and consumer services only, without using it for commercial purposes or financing vehicles. The financing ceiling was set at 50 thousand riyals, while it is reduced to 25 thousand riyals if it is done through financial technology, and the microfinance: targeting small business owners and craftsmen, with a maximum of financing of 200 thousand riyals.
“Sama” confirmed that it can adjust the maximum financing limits according to the market conditions or according to the geographical scope.

Conditions for establishing financing companies

The regulation has set precise conditions for the establishment of financing companies, as the founders must provide a detailed feasibility study, work models and future strategies for a period of five years, in addition to providing a bank guarantee that is not canceled.
As for the minimum capital, it was specified according to the nature of the activity, for example:

• 200 million riyals for real estate financing companies.
• 100 million riyals for other financing companies.
• 50 million riyals to finance small and medium enterprises.

Less amounts for technical activities such as microfinance or group financing with debt.
The regulations also confirmed that the central bank has the authority to raise or reduce the minimum capital according to market variables.

Institutional governance: strict civil standards

The list focused remarkably on the standards of suitability and eligibility for the founders, members of the boards of directors and executives, as it stipulated:

• Not being convicted of any crime against honesty, with ten years since the execution of the punishment.
• Enjoying financial solvency and the absence of a previous breach of financial obligations.
• Obtaining an official non -reluctance from the central bank before acquiring an impressive percentage in any financing company.

It was also stipulated that the founding member or manager had not been subjected to bankruptcy or a previous license request was rejected within specific time periods.

Financial financing controls and innovation

The regulation has paid special attention to financial technologies, as it has set flexible requirements and keeping pace with the requirements of the times for companies that provide microfinance services through financial technology platforms or group financing in debt. The conditions included reducing the minimum capital for these companies to five million riyals, while maintaining strict controls to ensure the safety of the sector.
This update represents an advanced step for the central bank towards developing the financing sector in Saudi Arabia in line with the best international standards. It is expected that the new regulations will contribute to raising the level of governance, transparency and operational efficiency of financing companies, in order to enhance their ability to provide easy and safe financing services to citizens and residents.
At the end of its announcement, the Saudi Central Bank affirmed that the project is available for observations and suggestions from the public, calling on all those interested in participating in the opinion through the electronic platform designated for that, which reflects the commitment of “Sama” to the principle of transparency and community partnership.

Strict requirements for capital and liquidity

The updates obligated the financing companies to comply with the levels of capital adequacy and liquidity according to the criteria determined by the bank, with the need to provide “Sama” with precautionary data at specified times, and commitment to providing any additional reports upon request, in a move aimed at enhancing pre -emptive control over the financial performance of these companies.
The new obligations were not limited to the financing activities, as the regulation stressed the need to obtain a non -reluctance from the bank before offering the shares of the financing companies in the financial market, or the approval or announcement of the distribution of profits, after ensuring that all the regular conditions are met.

Aqual organization of activities and governance

“Sama” confirmed that the financing companies are prohibited from practicing any activities other than financing, or having facilities that practice other activities, except after obtaining the necessary approvals. The regulations also prevented companies’ acquisition of assets that are not directly related to their work without the bank’s approval, as well as imposing a non -reluctance in partial or total liquidation cases.
In terms of governance, the updates stressed the need to develop internal regulations for corporate governance and adopt them from the boards of directors, with a clear definition of the specializations of the Council and its committees. The regulations obligated financing companies to form specialized committees, headed by the Review Committee and the Risk Management and Credit Committee, ensuring that there is an active and responsible organizational structure.
“Sama” obligated the financing companies to provide technical equipment compatible with the approved technical standards, provided that they are sufficient to meet the company’s needs and the nature of its operational risks. The regulations also called for the preservation of all documents, files and records in an organized and safe manner for a period of not less than ten years, while updating them periodically to ensure their completion and conformity to the regulations.

Supporting Emiratization and organizing employment

The new regulation has set clear conditions to support Emiratisation plans, as it stipulated that the percentage of Saudis in financing companies be at least 50 % when the activity begins, with an annual increase of at least 5 % until reaching 75 %. It also specified accurate controls for appointing non -Saudis, most notably providing what proves the lack of national competencies with the requirement to obtain the bank’s non -reluctance before the appointment.
The regulations organized the procedures for using external service providers, and obligated companies to set a written policy to assign tasks that are updated annually, while ensuring the possibility of the bank and auditors’ access to all information and documents related to service providers.
“Sama” stressed the importance of a written strategy for risk management adopted by the boards of directors, with the establishment of specialized risk departments that are directly related to the Risk and Credit Management Committee. The regulations obligated financing companies to prepare a quarterly annual reports on the risks, to discuss and approve them from the Board of Directors and provide the bank.
The updates also defined the scope of financing companies regarding financing policies, including creditworthiness, guarantee management, and dealing with troubled financing, with accurate control of microfinance through the procedures for evaluating beneficiaries and ensuring proper use of financing amounts.

Restrictions on the volume of funds and exposure

The regulations imposed restrictions on the volume of funds provided by companies, so that they do not exceed specific proportions related to paid capital and reserves.
The restrictions stressed the major exposure to the beneficiaries, with the need to obtain the bank’s failure to refrain in some cases, which contributes to reducing the regular risks.
With regard to financing, foreign currencies or for non -resident beneficiaries, the regulation stipulated that the bank’s prior approval, in addition to imposing the need for sufficient guarantees before granting financing, while allowing financing without guarantees only within the limits and strict controls.

A full commitment to international regulations and standards

The regulations obligated financing companies to adhere to the valid regulations and instructions and the principles of commitment issued by the bank, in addition to applying international accounting standards in preparing allocations to meet the potential losses and risks, with the possibility of the bank to demand additional allocations when needed.
“Sama” emphasized that these updates aim to raise the efficiency of financing companies, protect the rights of beneficiaries, and enhance the stability of the financial sector, in line with the Kingdom’s 2030 vision in developing the financial sector and increasing its contribution to the local product.