Important financial institutions law enables SAMA to maintain sector stability: Governor

The Saudi Cabinet’s approval for the law on treatment of systemically important financial institutions (SIFIs) allows the Saudi Central Bank (SAMA) to effectively monitor such institutions, maintain the financial sector’s stability and insulate the financial system against any negative impact, Ahmed Alkholifey, Governor of SAMA, said in a statement of which Argaam received a copy.

This comes in line with the G20 and Financial Stability Board recommendations, he added.

SAMA conducted a thorough study of the regulatory framework for the treatment of SIFIs, to analyze the best practices and relevant international standards, and find the regulatory framework that matches the local environment and national economy.  

The law has a special nature with regard to the application of its terms to specific entities and cases, and the tools it provides to fulfill its targets.

The new legislation does not cover other financial institutions, subject to SAMA supervision, which are not classified as “not important institutions” as per SAMA’s decision. The Saudi Central Bank will set special standards for the institutions under its supervision pursuant to the related laws that take into account the size, complicated nature and risks of institutions.  

It allows SAMA to take various actions to maintain the stability and soundness of the financial sector, protect the deposits and assets of customers as well as of insurance policy holders. The law also ensures the continuity of the necessary business activities of financial institutions and reduces dependence on government support, Alkholifey added.

Special provisions are also stated by this law, directing important institutions to develop a position recovery plan in case of insolvency or potential insolvency. In that case, SAMA will set a “treatment plan”, including actions to be taken when an institution becomes subject to treatment.

The law provisions also grant the competent authorities special powers when taking actions for treatment.

Treatment plans shall be first approved by the Council of Economic and Development Affairs, ahead of implementation by the institution, SAMA Governor concluded.