Financial Crime World

Saudi Arabia’s Financial Institutions Fortify Fraud Prevention as Risks Surge

Amidst a rising tide of financial fraud in Saudi Arabia, safeguarding against deceptive activities is a top priority for the kingdom’s financial sector. In this article, we explore the initiatives of the Saudi Central Bank (SAMA) to combat financial fraud through its comprehensive Counter-Fraud Framework.

Regulatory Backing and Saudi Central Bank’s Initiatives

The Saudi Central Bank (SAMA) is the primary regulatory body responsible for maintaining oversight of the financial sector. In response to the growing threat of financial fraud, SAMA has taken significant strides to combat the issue with the implementation of a Counter-Fraud Framework. This framework is part of a more extensive regulatory landscape that includes:

  • Anti-Money Laundering Law
  • Anti-Cyber Crime Law
  • Companies Law

These regulations foster a rigorous legal foundation for confronting financial fraud, specifying the responsibilities and obligations of financial institutions.

Saudi Central Bank’s Counter-Fraud Framework

SAMA’s Counter-Fraud Framework encompasses a common approach to addressing fraud risks within banking institutions:

  1. Fostering a common approach to addressing fraud risks
  2. Achieving a satisfactory maturity level of fraud controls
  3. Ensuring that fraud risks are skillfully managed

The framework comprises four primary domains:

Fraud Governance

  • Establishing fraud risk appetite
  • Identifying fraud risk owners
  • Defining fraud risk assessment and reporting

Prevention

  • Implementing fraud controls
  • Developing a fraud risk assessment
  • Identifying, mitigating, and monitoring fraud risk

Detection

  • Implementing fraud detection systems
  • Conducting regular fraud risk assessments
  • Developing an incident response plan and process

Response

  • Investigating fraud incidents
  • Reporting and pursuing offenders
  • Reviewing the effectiveness of fraud controls

Counter-Fraud Maturity Model and Anticipated Maturity Levels

The Counter-Fraud Framework provides a Maturity Model to gauge the maturity levels of fraud controls within financial institutions. There are six levels of maturity, ranging from 0 to 5. Institutions are expected to function at Level 3 or higher by June 29, 2023.

Risk Management and Cybersecurity Measures

To effectively detect and tackle potential fraud risks, financial institutions:

  1. Execute comprehensive fraud risk assessments to reveal potential fraud risks and inform a risk-based approach to fraud prevention.
  2. Outline defined roles and responsibilities within the organization for managing these risks.
  3. Recognize cybersecurity and fraud prevention as interconnected and implement specific cybersecurity regulations to solidify defenses against cyber-enabled fraud.

Fraud Detection Systems and Compliance Consequences

Institutions must adopt advanced fraud detection systems that harness the latest technologies and data analytics capabilities. SAMA mandates rigorous reporting requirements for suspected fraud cases and presents clear incident response and investigation procedures. Institutional negligence in adhering to these rules can result in severe penalties, including:

  • Financial fines
  • Regulatory sanctions
  • Reputational damage

Perpetrators of fraud in Saudi Arabia face up to seven years in prison and a maximum fine of SAR 5 million under the Financial Fraud Law. Those who illicitly acquire entrusted funds face the same punishment, with fines reaching SAR million.

In Sum

The Saudi Central Bank’s Counter-Fraud Framework delivers a structured approach to addressing fraud risks within financial institutions, an essential element for the sector’s success and longevity in Saudi Arabia. Institutions must adapt their fraud prevention strategies and incorporate international standards, emerging technologies, and collaboration with regulatory authorities, industry peers, and law enforcement agencies to effectively combat fraud risks and maintain public trust in the integrity of the financial system.