1. Islamic Law
2. Islamic Contract Law
3. Statute Law
4. Investing in Saudi Arabia
5. Other Forms of Doing Business
6. Companies and Partnerships
7. Doing Business with Saudi Arabia
8. Competition Law
9. Electronic Transactions
10. Taxation
11. Banking
12. Capital Markets
13. Mergers and Acquisitions
14. Insurance
15. Real Estate
16. Intellectual Property
17. Employment Law
18. Environmental Laws
19. Dispute Resolution
20. Sovereign Immunity



The central bank of Saudi Arabia, which is known as the Saudi Arabian Monetary Agency (SAMA), was established pursuant to the SAMA Charter, Royal Decree No. M/23 of 23rd Jumada Awal 1377 Hejra corresponding to 15th December 1957 Gregorian. The objects of SAMA are (i) the issue, support and consolidation of the Saudi Riyal; (ii) to be the central bank for the government; and (iii) to control the banks and money changers. The SAMA Charter sets out the functions of SAMA with regard to the supervision of banks and money changers, as well as specifying certain prohibited activities for SAMA. Corporate governance provisions in the SAMA Charter provide for the management of SAMA, and specific penalties are provided for in the event banks and money changers do not submit monthly reports of their financial position to SAMA or maintain the required minimum deposits with SAMA. In line with Islamic tenets the SAMA Charter provides that “The Saudi Arabian Monetary Agency shall not pay or receive interest” and SAMA shall not “carry on any act which violates the principles of Islamic rites: it may not pay or receive interest on business.”

The Currency Regulation, Royal Decree No. M/6 of 1st Rajab 1379 Hejra corresponding to 31st December 1959 Gregorian established the Saudi Riyal as the official currency of Saudi Arabia.
Banking in Saudi Arabia is regulated by the Banking Control Regulation, Royal Decree No. M/5 of 22nd Safar 1386 Hejra corresponding to 11th June 1966 Gregorian. Any entity carrying on banking activities is required to be licensed pursuant to the Banking Control Regulation, except for licensed money changers, which are permitted to carry on the activities of money changing, but no other banking activities. Banking activities include the business of receiving money in a current or fixed deposit account, the opening of current accounts, the opening of letters of credit, the issuance of letters of guarantee and the payment and collection of cheques.

The authority which is responsible for reviewing an application for a banking licence is SAMA. However, it is the Ministry of Finance and National Economy which grants such licence after approval from the Council of Ministers. The Banking Control Regulation lays down basic requirements for obtaining a banking licence. SAMA is also responsible for regulating the bank once it has been incorporated. The Banking Control Regulation also lays down the regulatory requirement of a deposit reserve ratio being maintained together with an obligation for banks to increase their capital and reserves in the event deposits exceed the prescribed amount. As required by most central banks, the Banking Control Regulation obligates each bank to maintain a deposit with SAMA, and provides SAMA with the flexibility of increasing or decreasing such deposits within a narrow band. Furthermore, banks are prohibited from extending to any one entity a loan or credit facility exceeding in total 25% of the total reserves and paid-up capital of the bank. In addition certain other activities, such as providing credit facilities to other banks, are prohibited. Certain other activities, such as merging with another bank, are prohibited unless written permission is obtained from SAMA and subject to fulfilment of the terms and conditions laid down by SAMA.

All banks are required to appoint two auditors duly registered in Saudi Arabia, and to post certain statutory reserves. Banks are also required to send monthly reports to SAMA. The Banking Control Regulation specifically requires SAMA to lay down general principles to regulate certain specific matters, provided they are approved by the Ministry of Finance and National Economy. SAMA also has the authority to require any information from any bank and to conduct audits; the latter requiring the approval of the Ministry of Finance and National Economy. There is also a specific confidentiality obligation in the Banking Control Regulation.
Subject to the approval from the Council of Ministers, the Ministry of Finance and National Economy has the authority to exempt a bank from the provisions of the Banking Control Regulation; provided that such exemption is in exceptional circumstances and for a limited period.

The Banking Control Regulation provides for penalties for banks in violation of the provisions of such laws, including cancellation of the licence for persistent violations by the Ministry of Finance and National Economy subject to the approval of the Council of Ministers. Other penalties that can be imposed or ordered by SAMA include:
01. suspension or removal of any of the bank’s staff who deliberately produced incorrect data or stated inaccurate information or events;
02. suspension or removal of any director or officer of the bank;
03. limiting or suspending the granting of credits or the acceptance of deposits; and
04. fines and imprisonment. For example, any person which contravenes the requirement for licensing shall be liable to imprisonment for a term not exceeding two years and to a fine not exceeding five thousand Saudi Riyals for each day the offence continues or to either of these penalties.

Banks are obliged to divest themselves of their investment activities and must set up new financial institutions for investment activities. Such financial institutions fall under the jurisdiction of the Capital Market Authority (please see below) and not under the jurisdiction of SAMA.

The Anti-Forgery Regulation, Royal Decree No. M/53 of 5th Dhul Qada 1382 Hejra corresponding to 30th March 1963 Gregorian deals with the forgery of financial instruments, making it an offence and providing for penalties for the forgery thereof.

Detailed regulations for the banking and financial sectors are contained in “secondary” legislation, in the following rules and regulations: (i) Regulation for Money Changing Business, Ministerial Decision No. 3/920 of the Minister of Finance and National Economy of 1981; (ii) Rules for Enforcing the Provisions of the Banking Control Regulation, Ministerial Decision No. 3/2149 of the Minister of Finance and National Economy of 1986; (iii) Rules for Bank Service Charges, SAMA Circular No. M/A/1/291 of 1979; (iv) SAMA Clarifying Memorandum on Powers and Responsibilities of Members of the Board of Directors of Saudi Commercial Banks; and (v) SAMA Instructions Concerning Compensation for Mutilated Banknotes.

*This Saudi Arabian Law Overview is not intended to be legal advice, and cannot be relied on as a substitute for legal advice. We make no representation that the contents of this Saudi Arabian Law Overview are or will remain accurate or current.
Copyright © Hatem Abbas Ghazzawi & Co.



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