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Cabinet greenlit amendments to the Kingdom’s law regulating financing companies, with the amendments published last Thursday in the official gazette, Umm Al Qura.
Background: The law was originally issued in 2012 and designated the Saudi Central Bank (Sama) as the regulatory body responsible for licensing finance companies in Saudi. It requires finance companies to operate as a joint stock company and mandated “that a certain percentage of the finance company must be offered through a public offering after two financial years.”
What’s new? The amendments maintain that financing companies generally operate as joint-stock companies, but grant Sama the space to allow other forms based on specific business needs. Companies must now obtain central bank approval before engaging in any non-financing activity. Additionally, the amendments prohibit financing companies from loaning to other entities if a member of their board of directors acts as a guarantor. Each financing company must establish a review committee composed of non-executive board members.
Violations + penalties: Under the amendments, the boards of directors of finance and refinance companies will be held accountable for any violations including holding positions in multiple financing companies; overseeing or auditing financing companies while serving on their boards; failing to disclose any personal or familial interest in financing contracts; and for any losses incurred from unguaranteed financing.
Tools available to Sama: The central bank can respond to any misconduct by issuing warnings, requiring corrective action, suspending operations, imposing fines, appointing external advisors, and, in serious cases, going to court of revoke a license or force the liquidation of a company.
REMEMBER- Sama released late last month a separate set of regulations outlining principles for compliance and internal auditing at finance and refinance companies. These draft regulations are still available for public consultation until Tuesday, 25 June, and are set to take effect six months after their publication on Sama’s website.
