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Saudi Central Bank's Fraud Crackdown: Counter-Fraud Framework

· 3 min read
Daniel Smith
Money Laundering Specialist

In the kingdom of Saudi Arabia, financial institutions are grappling with rising instances of fraud, threatening the security and stability of the financial sector. To tackle these challenges, the Saudi Central Bank (SAMA) has unveiled a stringent Counter-Fraud Framework as part of a broader regulatory structure.

Regulatory Foundation and the Saudi Central Bank's Initiatives​

The Saudi Central Bank, as the principal regulatory body supervising the financial industry, has responded to these challenges by introducing a comprehensive Counter-Fraud Framework. This initiative falls under a broader regulatory structure that includes critical legislation:

  1. The Anti-Money Laundering Law
  2. The Anti-CyberCrime Law
  3. The Companies Law

These regulations provide a legal foundation to tackle financial fraud, detailing financial institutions' responsibilities and obligations.

Saudi Central Bank's Counter-Fraud Framework: An Overview​

A. Aiming for Consistency and Enhanced Protection: The Threefold Mission​

The Saudi Central Bank's Counter-Fraud Framework aims to:

  1. Establish a standardized approach for managing fraud risks amongst member organizations.
  2. Cultivate a suitable maturity level of fraud controls within these organizations.
  3. Instill effective management of fraud risks throughout their operations.

B. Comprehensive Coverage: Fraud Governance, Prevention, Detection, and Response​

The Counter-Fraud Framework spans four primary domains:

  1. Fraud Governance: Establishing policies, ethics, and accountability for fraud management.
  2. Prevention: Implementing measures to avoid and reduce fraud occurrences.
  3. Detection: Implementing systems and processes to identify fraud.
  4. Response: Developing plans to effectively respond to fraud incidents.

C. Maturity Matters: A Six-Level Maturity Model and Expected Levels​

To evaluate the maturity levels of fraud controls present in financial institutions, the Counter-Fraud Framework introduces a Maturity Model featuring six levels:

  1. 0: Initial
  2. 1: Managed
  3. 2: Defined
  4. 3: Repeatable
  5. 4: Managed Systematically
  6. 5: Optimizing

By June 29, 2023, institutions must maintain a minimum maturity level of Level 3.

Risk Management and Cybersecurity Measures: Shielding the Frontlines​

Financial institutions must:

  1. Carry out thorough fraud risk assessments to identify and assess potential fraud threats.
  2. Implement a risk-based strategy for fraud prevention.
  3. Acknowledge the significance of cybersecurity and fraud prevention.

Fraud Detection Systems and Compliance Consequences: Staying Compliant or Suffer Reprisals​

Institutions must:

  1. Employ sophisticated fraud detection systems.
  2. Report suspected fraud cases to regulatory authorities.
  3. Maintain incident response and investigation methodologies.
  4. Update fraud prevention procedures regularly.

Failure to comply with the regulations can result in penalties, regulatory sanctions, and reputational harm. The Financial Fraud Law imposes up to seven years' imprisonment and a maximum fine of SAR 5 million on individuals engaged in fraud and a punishment of up to seven years and fines of up to SAR 10 million on those misappropriating entrusted funds.

Conclusion: The Power of Collective Initiative Against Fraud​

The Saudi Central Bank's Counter-Fraud Framework offers a robust approach to managing and mitigating fraud risks, ensuring the continued success and longevity of financial institutions in Saudi Arabia. Institutions must remain agile, adopting leading practices and embracing advanced technologies to counter the latest fraud trends and techniques. This includes employing international standards, capitalizing on data analytics and artificial intelligence, and maintaining active collaborations with regulatory bodies, industry partners, and law enforcement agencies.