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Banking laws and Regulations in the Kingdom of Saudi Arabia

Banking laws and Regulations in the Kingdom of Saudi Arabia

Banking laws and Regulations in the Kingdom of Saudi Arabia
2 years ago

The banking laws and regulations in the Kingdom of Saudi Arabia are supervised by the Saudi Arabia monetary authority. The Saudi Arabia monetary policy was established in 1952. Earlier it was recognized as the Saudi Arabian Monetary Agency. It initially was the bearer of the Kingdom’s gold reserves and accepted oil revenues on behalf of the Saudi Arabian government. The Saudi Hollandi Bank transferred all of its responsibilities to the SAMA when it was established in 1952.

SAMA is the Central Bank of Saudi Arabia, the primary functions of the SAMA comprises of issuing the Saudi Riyal which is recognized as the national currency, supervision of all commercial banks, managing the foreign exchange reserves, and assuring the growth and soundness of the financial system, carefully operating various cross-bank electronic-based financial systems.


The Board of directors is responsible for the smooth functioning of the operations under SAMA. This includes

  • the governor
  • vice-governor and
  • nominated members from the private sector(three)

Initially, Saudi Arabia did not have any formal money and banking system. Saudis mostly used coins as a tool for exchange transactions in urban areas. For centuries foreign coins played a vital role in serving the monetary needs of local inhabitants. More Foreign and domestic banks were established as oil revenues began to rise. In 1927 the government decided to issue a silver riyal to standardize the monetary units then in circulation. By 1950 with an abrupt increase in government expenditures and foreign oil company spending, and in the regulation of recently established private banking institutions demanded more formal strict controls and clear policies. In 1952 the Saudi Arabian Monetary Agency (SAMA) was established with technical help from the United States of America, which was primarily formulated to serve as the central bank within the boundaries of Islamic law.

The financial system has incorporated various layers intentionally to serve several multidimensional economic, exchange, and also regulatory roles. At the pinnacle was SAMA, which formulated the country’s overall monetary policy. The functions of SAMA also focused on the stabilization of the value of the currency in an open environment along with respect to the exchange transactions and flow of capital.

SAMA’s charter specified that it would keep up to Islamic law. It shall not establish itself as a profit-making institution and could neither pay nor receive interest. In 1966 an important banking control law elucidated and strengthened SAMA’s significant role in proper regulation of the banking system in the Kingdom of Saudi Arabia. All the applications for obtaining bank licenses were submitted to SAMA, which then submitted each application further along with its recommendations to the Ministry of Finance and National Economy. The law also promulgated requirements in relation to the reserves against deposits. Various restrictions continued to disrupt SAMA’s execution of monetary policy.

Because commercial banks supported short-term lending to all established firms and individuals, the government created unique credit institutions as a means to fund other sectors and groups in the economy. The Saudi financial system also comprised three autonomous government institutions. These institutions because of their major role in providing finance for budgetary shortfalls, deposits with SAMA, and foreign currency holdings.

There are a total of 24 licensed banks in Saudi Arabia, comprising 12 local banks and 12 branches of foreign banks. The central bank of the kingdom i.e. Saudi Arabia Monetary Authority (SAMA), supervises the operations of commercial banks that operate in Saudi Arabia. The SAMA is also solely responsible for issuing the national currency i.e. Saudi Riyal and also governing the country’s foreign exchange reserves, keeping a check on price and exchange rate stability, and securing the growth and soundness of the domestic financial industry so that the country flourishes in terms of development.

Regulation of Agent banking in the Kingdom of Saudi Arabia

Article 1 defines various definitions that are relevant to the banking structure in the Kingdom of Saudi Arabia i.e.


  • Saudi Arabia Monetary Authority,
  • Bank- bank authorized to carry out banking functions in the Kingdom of Saudi Arabia following the provisions of banking law.
  • Agent – a legally authorized contract with a licensed commercial bank and ratified by SAMA to carry out Agent banking activities.
  • Agent banking- when the banking services or products by an agent on behalf of a bank in accordance with the provisions of this regulation.
  • KYC- (know your customers)the process of customer identification that the agent needs to follow in identifying their customers and also the beneficiaries.

Article 2 mainly aims towards the following aspects

  • To make banking services profoundly reachable to unbanked and underbanked people with their safety and stability of the banking sector is also kept in check.
  • Agents may also be hired by banks to reduce the banking service cost. It also aims towards inhabiting financial inclusion.
  • A proper guideline with rules and regulations to be set up for agent banking in sync with banking contract law along with its proper implementation of all its features in addition to SAMA formulated list do’s and don’ts.
  • It also outlines the major permissible activities which the banking agent is permitted to carry out but on the condition that it has a stamp of approval from SAMA.
  • It also includes the major requirements and minimum standards expected from Agent Banking for the smooth running of the business.
  • The above-mentioned guidelines would automatically apply to all banks planning to have contracts with agents.

Article 3 talks about the responsibility of the Board of directors

  • This clearly states that the selection and relation between the bank and its agent should be direct and unbiased as per the clauses in the respective contracts. The Board of directors would be further held responsible.
  • The banks would be liable for all the actions of the agents regarding their transactions on behalf of the banks.
  • Primarily, the main task of the Board of directors would be towards approval of policies and process involving
  • Selection of credible agents
  • all the risks involved with the agent of banking should be identified and thereafter appropriate risk management policies to be constructed and implemented as per SAMA guidelines.
  • Agent banking activities are watched consistently to ensure its compatibility with relevant laws and regulations.
  • Proper control to be exercised in order to ensure that the contract is supposed to fulfill legal clauses in line with SAMA and Anti-money laundering law etc. and it should also cover monetary frauds, embezzlements and information security concerns.

Article 16 defines the obligations and responsibilities of the bank

  • The Banks should be decisive, have proper and profound documents regarding the use of Agents for providing banking services to its customers
  • The Bank would be totally answerable and liable too for all actions of its agents. Even their removal will be in their jurisdiction. In case there is no authorization in contract still the responsibility will be entirely on the bank. As far as the Agent banking services or other matters related to these are considered it will solely be the bank’s responsibility for example:-

Keeping an efficient check on Agents activities while ensuring proper controls including remote transaction, monitoring or reporting of fraud transactions should be

  • incorporated into the bank’s procedures on Agent Banking as per rules, regulations, and instructions issued by a bank
  • Regular auditing can be done to keep a firm check and to assess the adequacy of controls of Agent banking activities.
  • Framing and implementing policies safeguard data and systems from various threats
  • For serving customers efficiently Agents to be provided with operational manuals, and also the risk management policy documents.
  • To reach out to more and more customers agents with available retail outlets to be selected
  • To ensure basic financial education for its customers and agents related to bank details for eg. They should be made aware of protecting bank card Pin, no disclosure of confidential information of bank accounts of customers to agents
  • To develop a central administration to supervise all its agents and appointing experts to supervise all its agents in a designated area.
  • It should seek to achieve an integrated risk management approach for all banking activities.

Article 19 and 20 lay down the distinction between permissible and non-permissible activities

Permissible activities – the major permissible services for agents after the bank gets NOC from SAMA are as follows

  • Bank account opening
  • Preparation and submission of loan applications fully documented
  • Preparation and submitting of credit cards etc.
  • Letters of guarantee
  • Cash deposits and withdrawals
  • Cheques, currency exchange, national and international fund transfers
  • Sales and marketing services
  • Payment of electronic bills and fees and fines for various purposes.

Non-permissible activities – the Agents are not allowed by banks for the following activities

  • Carrying out any transactions in case of communication failure for eg. No network, or if manual mode is being done.
  • Without receipt generation( due to any reason) no transaction to be done
  • No fine or fee to be charged by customers which are not approved by SAMA
  • Conducting any transaction outside of SAMA’s payment infrastructure
  • Violating banks code of conduct or ethics or any other prohibitory activity

Anti-money laundering law in KSA

Although the definition of money laundering is not clearly stated, Article 2 approves the implementation of the Anti‐Money Laundering Law, and provides for the offenses which fall under the ambit of money laundering. These offenses include:-

Converting, transferring or carrying out any transaction of funds that the person knows is a result of proceeds of crime with a view of concealing or impersonating the illegal origin of the funds, or helping a person involved in the commission of the offense, that initiated the funds in order to dodge the legal consequences of his/her acts;

Acquiring, possessing or using money with the knowledge that the proceeds were obtained by committing a crime, or from an unlawful source;

Concealing or disguising the true nature, source, movement, ownership, place, disposition, or manner of disposition, or rights with respect to funds that the person knows are the proceeds of crime;

Attempting to perform any of the above-stated acts or in some cases participating in, by means of an agreement, or providing help, or abetting, or providing counseling, advice, or facilitation, covering –up, or any attempt to commit other acts provided for in this Article.


  • whoever commits the crime of money laundering, as stated in Article 2 of the Anti‐Money Laundering Law, shall i be subject to imprisonment for a period of ten years and no less than two years, and a fine not exceeding five million riyals, or both (Article 26)
  • According to Article 27 of the Anti-money laundering law, whoever commits the crime of money laundering, as stated in Article 2 of this act shall be subjected to imprisonment for a period of up to fifteen years and no less than three years, along with a fine not exceeding than seven million Riyals, or both if the crime was committed along with any of the following:
  • Committed a crime through an organized illegal syndicate
  • The crime was committed in relation to a public office, or if a person working in public office abused his/her powers or acted as an influence in committing the crime.
  • human trafficking
  • exploiting persons or minors.
  • carrying out an illegal act through a charitable institution, educational institution or social service means; or
  • has been earlier convicted within the Kingdom of Saudi Arabia or abroad.
  • Article 31 of this act states that any person who is not barred by any law, commits a money laundering crime shall be punished with a fine of not more than 50 million riyals and no less than the equivalent of double the full value of the funds that were the object of the offense. This act also lays down stringent rules for a legal person can also be prohibited, permanently or temporarily, from engaging in any licensed activities, be it directly or indirectly, or be asked to close its offices which were deployed in perpetuating any offense, or ordered to liquidate the business. In addition, this act also lays down that the competent court can issue an order to confiscate the funds obtained by proceeds of the crime and the funds acquired by money laundering, including proceeds intermixed with funds obtained from legal sources, only up to the value of the intermixed proceeds.


With regard to the banking infrastructure in Saudi Arabia, some prominent breakthrough developments have been made which affected the banking sector. Ever since the establishment of SAMA in 1952, this played a major role in affixing the central banking system. As the article talks about the Agent banking system and its stringent rules and regulations we come across various aspects of the banking system in Saudi Arabia. Lastly, the emphasis is laid on the Anti-money laundering law and punishments that are given to the offenders.

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