Saudi Arabia’s Digital Economy Blossoms: How SAMA is Combating Financial Crimes in the Kingdom’s FinTech Boom

Saudi Arabia, a global leader in digital transformation, is making strides towards turning its cash-heavy economy into a cashless one. With an ambitious goal to reach 70% cashless transactions [1], the kingdom is witnessing a FinTech boom [2] due to the tech-savvy population and the surge in digital services because of the COVID-19 pandemic.

The Digital Transformation and Financial Crime Challenges [3]

The financial technology sector in Saudi Arabia is growing rapidly, with the recent approval of licenses for the Kingdom’s first two digital banks, STC Pay and Saudi Digital Bank. This growth, however, comes with new financial crime challenges. Digital payments and online transactions pose risks for regulatory gaps and financial crime activities due to the diverse range of actors [4], including e-commerce merchants and financial institutions. The anonymous nature of cross-border transactions further complicates financial crime prevention.

SAMA’s Response [5]: Regulations, Guidelines, and New Technologies

To maintain the integrity of the financial system, the Saudi Arabian Monetary Authority (SAMA) has taken a proactive approach by issuing regulations. The Payment Services Provider Regulations, introduced in January 2020, require compliance with the Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations in the Kingdom’s digital economy [6]. Additionally, the Licensing Guidelines and Criteria for Digital-Only Banks, published in February 2020, allow for the use of Regulatory Technology (RegTech) in new regulatory technologies like e-KYC [7].

Open Banking and the Future of Financial Crime Regulation [8]

SAMA’s plans to release an open banking framework in early 2022 could further revolutionize the financial services sector by granting third-party access to customer banking data, enabling personalized services and greater innovation [9]. However, this brings new fraud risks for banks, and SAMA will need to find a balance between innovation and financial crime prevention [10].

New Financial Fraud Law [11]: Combating Financial Fraud

Saudi Arabia’s new Financial Fraud Law, issued earlier this year, Criminalizing Fraud and Breach of Trust by Royal Decree No. (M/79) of 1442 H (2021G), criminalizes fraudulent activities resulting in financial gain or other benefits. The law also targets those who attempt, incite, or collude in such activities, with punishments including up to seven years in prison and a maximum fine of SAR 5 million for perpetrators [12].

As the Kingdom continues to embrace digital advancements, SAMA’s focus on implementing effective anti-financial crime regulations [13] will ensure a secure environment for FinTech companies and digital investors. FinTech companies entering or already operating in the Saudi market must stay informed about the evolving regulations and seek expert legal advice for their financial crime compliance measures.

[1] Reference: [Link] [2] Reference: [Link] [3] Challenge of Financial Crime in the Arabian Gulf: https://www.financialcrime-blog.com/financial-crimes-in-the-arabian-gulf/ [4] Money Laundering and Terrorist Financing Risks in Digital Payments: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD620.pdf [5] SAMA’s Regulatory Approach: https://www.sama.org.sa/en/home/regulations/Pages/default.aspx [6] Saudi Arabia: Payment Services Regulation, 2019: https://www.sama.org.sa/-/media/Files/EN/Regulations/Payment-Services-Regulation/Payment-Services-Regulation.ashx [7] Regulation of Digital Banking and Virtual Currencies in the GCC: https://www.hoganlovells.com/en/insights/publications/2019/november/regulation-of-digital-banking-and-virtual-currencies-in-the-gcc [8] Open Banking, SAMA, and FinTech: https://www.zawya.com/mena/en/story/SAMAs_open_banking_framework_to_propel_digital_finance_growth-FPJK1ZY1OSRZ03/ [9] Open Banking, An Overview for Banks: https://www2.deloitte.com/us/en/pages/consulting/articles/open-banking-an-overview-for-banks.html [10] Balancing Innovation and Risk Management in Open Banking: https://www.forbes.com/sites/bernardmarr/2021/05/11/balancing-innovation-and-risk-management-in-open-banking/?sh=26dea8f23f1b [11] SAMA Circular on Financial Fraud: https://www.sama.org.sa/-/media/Files/EN/Regulations/Supervision%20Circulars/Circular-25-2021-FINB-Financial-Fraud-Circular.ashx [12] Criminalizing Fraud and Breach of Trust by Royal Decree No. (M/79) of 1442 H (2021G): https://www.sama.org.sa/-/media/Files/EN/Laws/Financial-Fraud-Law/Financial-Fraud-Law-Full-Text.pdf [13] SAMA’s Approach to Combating Financial Crime: https://www.sama.org.sa/en/home/regulations/Pages/AntiMoneyLaundering.aspx