Financial Crime Trends and Predictions in Saudi Arabia: A Growing Need for Regulatory Reforms
Introduction
Saudi Arabia has set its sights on becoming a leader in the digital economy, with ambitious plans to reduce cash transactions and increase cashless payments. The Kingdom’s vision for a digital economy is expected to lead to significant growth opportunities for FinTech companies, but it also poses challenges related to financial crime prevention.
Regulatory Reforms Underway
The Saudi government has been actively working on regulatory reforms to support the development of a strong digital economy. In June this year, the Cabinet approved the licensing of two digital banks in the Kingdom, with STC Pay and Abdul Rahman Bin Saad Al-Rashed & Sons Company receiving licenses to establish local digital banks.
SAMA’s Regulatory Approach
The Saudi Central Bank (SAMA) has taken a proactive approach to regulating anti-financial crime activities. The Payment Services Provider Regulations issued by SAMA require payment service providers to comply with the Anti-Money Laundering Law and related regulations. Additionally, the Licensing Guidelines and Criteria for Digital-Only Banks provide for the use of RegTech for processes like e-KYC.
Growing Need for Anti-Financial Crime Measures
The increasing use of digital payments and FinTech services has led to new risks and challenges in Saudi Arabia. The anonymity of cross-border transactions and the diversity of actors involved in the digital economy have intensified the challenges of financial crime prevention.
Key Risks and Challenges:
- Anonymity of cross-border transactions
- Diversity of actors involved in the digital economy
- Increased use of digital payments and FinTech services
Open Banking: A New Era of Financial Innovation
SAMA plans to issue a framework for open banking in the Kingdom, which will allow third-party developers to access customer data from banks and non-bank financial institutions. This move is expected to open up new opportunities for FinTech companies in Saudi Arabia, but it also raises concerns about managing financial crime risks.
New Financial Fraud Law
Saudi Arabia has issued a new Law for Combating Financial Fraud and Breach of Trust, which provides for punishment of up to seven years in prison and maximum fines of SAR 5 million for those who appropriate funds by engaging in fraud. The law criminalizes the attempt of these criminal acts, as well as the acts of incitement, agreement or collusion to carry out such acts.
Conclusion
Saudi Arabia’s push towards a digital economy has created both opportunities and challenges related to financial crime prevention. As FinTech companies expand their operations in the Kingdom, they must ensure that their internal policies and procedures are in conformity with Saudi AML law and SAMA’s regulations on anti-money laundering and counter-terrorism financing.
Recommendations for FinTech Companies
If you are operating or seeking to operate a FinTech company in Saudi Arabia, consider the following recommendations:
- Seek expert legal advice on financial crime compliance measures.
- Ensure that your internal policies and procedures are in conformity with Saudi AML law and SAMA’s regulations on anti-money laundering and counter-terrorism financing.
- Implement effective anti-money laundering and KYC controls to mitigate risks.
- Monitor and report suspicious transactions to the relevant authorities.
By taking these steps, FinTech companies can mitigate financial crime risks and capitalize on the opportunities presented by Saudi Arabia’s digital economy.