The Saudi Cabinet’s approval for the law on the treatment of systemically important financial institutions (SIFIs) allows the Saudi Central Bank (SAMA) to effectively monitor such institutions, achieve the public good, and keep abreast of international best practices, announced SAMA Governor Ahmed al-Kholifey.
Kholifey stressed that this step will help maintain the financial sector’s stability and insulate the financial system against any negative impact, in line with the G20 and Financial Stability Board recommendations.
He explained that SAMA had conducted earlier 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 new regulation 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.
It does not cover other financial institutions, subject to SAMA supervision, which are not classified as “important institutions” as per the bank’s decision.
The Central Bank will set special standards for the institutions under its supervision pursuant to the related laws that take into account the size of the institution, its complexity, and associated risks.
The system aims to enable 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 policyholders.
In addition, it ensures the continuity of the necessary activities of financial institutions and reduces dependence on government subsidies.
The system also includes special provisions directing important institutions to develop a “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, in order to achieve the aforementioned objectives.
The law provisions grant the competent authorities special powers when taking actions for treatment, including the approval of the Council of Economic and Development Affairs, ahead of implementation by the institution.
The system became a necessity in the wake of the global financial crisis of 2008, which prompted the G20 to issue its recommendations to the Financial Stability Board to review and analyze the causes of the crisis.
It was concluded that establishing and developing laws that enable regulatory agencies to intervene quickly and effectively to avoid crises affecting the stability of the financial system is very crucial.
The Financial Stability Board then issued the “Key Attributes of Effective Resolution Regimes for Financial Institutions” which was classified by the 2011 G20 Cannes Summit, as new international characteristics for frameworks for treating important financial institutions.
