Financial Crime World

Title: Saudi Central Bank’s Crackdown on Financial Fraud: A Comprehensive Approach

Regulatory Framework and the Saudi Central Bank’s Leading Role

In the dynamic financial landscape of Saudi Arabia, financial institutions face an increasing challenge from fraudulent activities. To combat this trend and protect customer trust and financial stability, the Saudi Central Bank (SAMA) is taking a prominent role.

  • The Central Bank is spearheading the fight against financial fraud with an extended Counter-Fraud Framework.
  • This initiative is part of a larger regulatory structure that includes key legislation such as the Anti-Money Laundering Law, Anti-Cyber Crime Law, and Companies Law.

Counter-Fraud Framework: Objectives and Key Domains

SAMA’s Counter-Fraud Framework aims to:

  1. Unify fraud prevention efforts across member institutions.
  2. Encourage a strong level of fraud awareness and vigilance.
  3. Manage fraud risks throughout organizations.

The Framework covers four main domains:

  • Fraud Governance: Sets up a unified approach to managing fraud, a fraud risk policy, and a fraud response plan.
  • Prevention: Implements fraud awareness programs and controls, due diligence measures, and mitigating strategies.
  • Detection: Uses tools for monitoring suspicious activities, including transaction monitoring and advanced analytics.
  • Response: Establishes procedures for investigating and reporting fraud, as well as mitigating the consequences.

Maturity Model and the Expected Levels of Fraud Controls

SAMA has developed a six-level Maturity Model to assess institutions’ fraud control maturity. By June 29, 2023, all members must maintain at least Level 3. This requires:

  • Formal counter-fraud controls.
  • Fraud detection mechanisms.
  • Compliance monitoring with fraud-related documentation.

Managing Risks and Fortifying Cybersecurity

To effectively tackle fraud risks, financial institutions must:

  • Perform thorough fraud risk assessments.
  • Implement a risk-based approach.
  • Assign roles and responsibilities within the organization.
  • Strengthen cybersecurity to protect against cyber-enabled fraud.

Fraud Detection Systems and Consequences for Non-Compliance

To efficiently detect and prevent fraud, institutions need to:

  • Integrate advanced fraud detection systems.
  • Adhere to reporting requirements for suspected fraud cases.
  • Have defined procedures for incident response and investigation.

Failure to comply may result in:

  • Substantial financial penalties.
  • Reputational damage.
  • Regulatory sanctions.

The Financial Fraud Law imposes penalties of up to seven years in prison and fines of up to SAR 5 million on fraud offenders. Those entrusted with funds face fines of up to SAR 10 million and seven-year prison terms.

Looking Forward: Evolving Practices and Technologies

SAMA’s Counter-Fraud Framework offers a robust strategy to manage fraud risks. However, to remain effective, financial institutions must:

  • Adopt international standards and emerging technologies.
  • Collaborate with regulatory bodies, industry peers, and law enforcement agencies.