RIYADH: Saudi Arabia's Cabinet has recently approved the law on treatment of systemically important financial institutions (SIFIs), which stipulates the effective supervision and control over the important financial institutions to protect the financial system in Saudi Arabia from negative influences.
Therefore, the financial institution will be classified as important as per a decision issued from the Saudi Central Bank (SAMA) or the Capital Market Authority (CMA), according to certain standards related to the size of the financial institution, or complexity resulting from its internal and external interconnection and links with other financial institutions, as well as its operations, and related risks, the Saudi Official Gazette Umm Al-Qura reported.
The competent authority may take treatment measures against any important financial institution, as well as its owners and creditors, to achieve any of the following objectives:
1) Protection of the Kingdom's financial sector from any serious negative effects
2) Continuation of the necessary activities of the important financial institution under treatment
3) Reduction of dependence on government support through relying on the resources of the financial institution
4) Protection of deposits, clients' assets and funds, and rights related to insurance policies
5) Protection of settlement systems and their stability
As per the law, SIFIs should prepare a recovery plan within 180 days from the date of receiving a request from the competent authority. In turn, the competent authority should approve the plan within 90 days or return it to the financial institution for amendment. Then, the SIFI should resubmit the plan within the period set by the competent authority.
The competent authority should also prepare a treatment plan for each SIFI, including the treatment procedures and the possibilities of disturbance and causes.
The treatment plan should also include the following:
- Determination of the main competent authority or any other necessary related party as well as the tasks and powers of each party
- A summary of the main elements of the plan
- A summary of the material changes that have occurred in the SIFI since the last treatment plan
- Clarification of how essential activities, or any other major activity, are systematically and economically separated from other activities, to ensure the survival of the important financial institution
- An estimate of the expected timeframe for implementing each essential aspect of the plan
- A detailed description of the procedures for determining the market value of the important financial institution's activities, operations, and assets, marketability and sale
- An explanation of how the treatment procedures will be financed
- An explanation of the different treatment procedures that can be applied depending on the status and circumstances of the important financial institution
- A description of the options available for maintaining the important financial institution's membership in the settlement systems, as well as evaluation of the options related to transferring clients' assets, deposits, funds, accounts, and insurance policies
The competent authority will provide the important financial institution with the main elements of the treatment plan or may update it when necessary
In addition, the competent authority will submit the treatment plan or its update after reviewing, it in light of the financial institution’s views, to the Council of Economic and Development Affairs (CEDA) for approval. The council will then issue its decision within 60 days.
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