Saudi Arabia Sees Surge in Digital Economy, Boosts Anti-Financial Crime Efforts
A Leader in the Digital Economy
In a bid to become a leader in the digital economy, Saudi Arabia has implemented rapid legal reforms aimed at providing an environment conducive for investors, entrepreneurs, start-ups, and innovators. The government’s Vision 2030 plan aims to increase the use of cashless payments to 70%, a goal that Saudi Arabia is well-positioned to achieve given its digital-savvy population.
FinTech Boom in the Kingdom
The COVID-19 pandemic-driven need for online-based solutions has sparked a financial technology (FinTech) boom in the Kingdom. The government’s efforts have been successful, with recent Cabinet approvals of licenses for two digital banks, STC Pay and Abdul Rahman Bin Saad Al-Rashed & Sons Company, to operate in the country.
Regulatory Challenges
However, the digital transformation also presents new risks and challenges, including regulatory gaps and loopholes brought on by innovations in FinTech. The sheer diversity of actors involved in the digital economy intensifies the challenges of financial crime prevention.
Saudi Central Bank Takes a Proactive Approach
The Saudi Central Bank (SAMA) has taken a proactive approach to address these challenges through its regulatory framework. SAMA’s Payment Services Provider Regulations require payment service providers to comply with anti-money laundering (AML) and counter-terrorism financing laws.
Key Regulatory Measures
- Payment Services Provider Regulations: Require payment service providers to comply with AML and CTF laws.
- Licensing Guidelines and Criteria for Digital-Only Banks: Provide opportunities for the use of new regulatory technology (RegTech) for processes such as e-KYC.
- FinTech Company Requirements: Ensure that internal policies and procedures are in conformity with the Saudi AML law and SAMA’s regulations on anti-money laundering and counter-terrorism financing.
Open Banking on the Horizon
SAMA has announced plans to issue a framework for open banking in the Kingdom, which is expected to be released early next year. This move presents significant opportunities for FinTech companies as it will allow third-party developers to access customer data (with their permission) from banks and act as a bridge to financial technology platforms.
Benefits of Open Banking
- Improved AML and KYC: Data can be shared across multiple providers, improving the abilities of Saudi banks to conduct AML and KYC.
- New Fraud Risks: Opening up systems to third parties creates new fraud risks for Saudi banks.
New Financial Fraud Law
Saudi Arabia has issued a new Law for Combating Financial Fraud and Breach of Trust, which provides punishment of up to seven years in prison and maximum fines of SAR 5 million for those who appropriate funds by engaging in fraud.
Key Provisions of the Law
- Punishment: Up to seven years in prison and maximum fines of SAR 5 million.
- Criminalization: The attempt of these acts, as well as the acts of incitement, agreement or collusion to carry out such acts are also criminalized.
Conclusion
The recent regulations issued by SAMA, combined with this new law, demonstrate that the Kingdom is fully aware of the importance of providing an effective anti-financial crime regulatory environment. FinTech companies keen on entering the Saudi market or already operating in the Kingdom would be wise to seek expert legal advice when it comes to their financial crime compliance measures.
As Saudi Arabia continues to develop its digital economy, it is crucial that authorities prioritize anti-financial crime efforts to maintain a secure and trustworthy financial system.