Financial Crime World

Saudi Arabia’s Digital Economy Surge: Navigating Financial Crime Risks with Regulatory Innovations

The Kingdom of Saudi Arabia is making significant strides in the digital economy, with a strategic goal to increase the use of cashless payments to 70% and foster a thriving FinTech sector. According to the latest regulatory developments, the country’s vision, Vision 2030, is translating into a digital boom. In 2021, the first two digital banks – STC Bank and Saudi Digital Bank – were approved.

The Digital Transformation: Opportunities and Risks

The digital transformation in Saudi Arabia fuels an increase in financial crime opportunities. With various actors involved, from e-commerce merchants and payment processors to financial institutions, and the anonymous nature of cross-border transactions, regulation becomes a complex challenge.

graph LR
Subgraph Digital Economy
Ecommerce Merchants
Payment Processors
Financial Institutions
Payment Service Providers
Subgraph Regulations
Saudi Central Bank (SAMA)

Ecommerce_Merchants -->|Transactions| Payment Processors
Payment_Processors -->|Services| Financial Institutions
SAMA --> RegTech & AML_Regulations
SAMA --> Open_Banking
Payment_Service_Providers --> SAMA

SAMA, the Saudi Central Bank, is moving forward, embracing innovative Regulatory Technology (RegTech) and adopting a proactive stance.

SAMA’s Proactive Regulatory Landscape

SAMA’s Payment Services Provider Regulations, issued in January 2020, require payment service providers to comply with the Saudi Anti-Money Laundering (AML) Law and SAMA’s AML/Counter-Terrorism Financing regulations. Additionally, the Licensing Guidelines and Criteria for Digital-Only Banks issued in February 2020 open doors for the use of RegTech in areas like e-KYC. This means that FinTech companies and RegTech providers must ensure their processes and services comply with Saudi Arabia’s evolving anti-financial crime regulations.

  • Payment Services Provider Regulations

    • Compliance with AML and CTF regulations
    • Adherence to SAMA’s RegTech guidelines

  • Licensing Guidelines and Criteria for Digital-Only Banks

    • Encouragement of RegTech usage
    • Compliance with SAMA’s AML/CTF and KYC regulations

On the Horizon: Open Banking

SAMA plans to introduce an open banking framework in the Kingdom, enabling third-party providers access to customer data with their consent. This move will bring opportunities for FinTech companies, enhance customer control, and foster access to bespoke financial services.

  • Opportunities for FinTech companies
  • Enhanced customer control
  • Access to bespoke financial services

Financial Crime Risks and Data Security

Managing financial crime risks and ensuring data security with an open banking model remains crucial.

Clear Sign of Intent: New Financial Fraud Law

In 2021, Saudi Arabia enacted a new Financial Fraud Law, which criminalizes various forms of fraud with penalties up to seven years in prison and fines of SAR 5 million for individuals. The law extends to entrusted funds, attempts, incitement, agreement, or collusion to commit fraud. The new law, along with SAMA’s regulations, underscores the Kingdom’s commitment to combating financial crime.

FinTech companies entering or already operating in the Saudi market have a clear call to action: ensuring compliance with local anti-financial crime regulations is a must.