Banking and Finance Disputes in Saudi Arabia:A Closer Look at the Resolution Process
Saudi Arabia Focus
Abdullah Al TamimiPartner, Head of Litigation - Saudi Arabia
Mohammed NegmSenior Counsel,Dispute Resolution
The banking and financing sectors play a crucial role in the economy of Saudi Arabia. However, it was a challenge for these sectors to have dispute resolution mechanisms while the judges in courts hold degrees from Sharia schools, not law schools, and they are not familiar with some technical aspects of banking and financing transactions. In addition, with the absence of a civil code, the judges may have differing views on their compliance with Islamic law. To address this challenge, the Saudi government has established several mechanisms for resolving disputes in the banking and financing sectors. In this article, we will delve into these mechanisms as follows:
The Banking Disputes Committee (BDC) is an independent judicial body based in Riyadh that was established in 1987 by Royal Order 8/729. The Committee is responsible for hearing disputes between banks and customers related to banking transactions. In 2012, Royal Order No. 37441 was issued to give the BDC the necessary authorities to make final and binding decisions on all banking disputes, similar to court rulings.
The Committee is composed of one or more panels, each consisting of three members and a reserve member. These members possess experience, qualifications, and knowledge of banking transactions, with at least one member being Sharia-qualified. The Committee's decisions are based on the information and evidence in the case file and the agreements between the parties to the dispute and are made by the majority. The decisions can be appealed to the Appellate Committee within 30 days of receipt.
The Committee's decisions are final and cannot be challenged by any other party.
An Appellate Committee for Banking Disputes and Violations has also been established, consisting of one or more panels and at least one Sharia-qualified member per panel. The Committee's decisions are final and cannot be challenged by any other party. All state agencies are obligated to enforce the final decisions issued by the Committee. It is important to know that the Cases in banking disputes cannot be heard after five years from the date of maturity of the amount in question or from the date of knowledge of the incident in dispute unless an excuse is estimated by the Committee.
The Committee applies its own procedural rules, in addition to the Civil Procedure Law. These rules take into account the special nature of banking disputes and allow for flexibility in proof, including electronic means such as email, telephone communications, and text messages. In 2020, Royal Decree No. A/356 was issued to form Committee departments in the cities of Dammam and Jeddah to reduce the burden on the Committee's panels in Riyadh and make it more convenient for litigants.
On July 3, 2012, the Kingdom of Saudi Arabia took a major step in regulating the non-banking finance sector with the issuance of Royal Decree No. (M/51) of the Finance Companies Control Law. With this new legislation came the formation of a specialized committee to handle related disputes and violations, the “Committee for Finance Disputes and Violations”.
This committee, consisting of one or more panels, is tasked with adjudicating a wide range of violations, disputes, and claims that arise from the application of the Finance Companies Control Law and Finance Lease Law, including rules, regulations, and instructions. The committee also has the power to review and decide on grievances against the decisions of the Central Bank of Saudi Arabia related to the finance sector, within sixty days of notification.
The committee has been granted all necessary powers to thoroughly investigate and adjudicate cases within its jurisdiction. This includes the ability to summon witnesses, issue decisions, impose penalties, and order the submission of evidence and documents.While the Committee for Resolution of Financing Violations and Disputes has broad authority, there are certain cases that fall outside of its jurisdiction. These include disputes arising from real estate finance contracts and finance lease contracts where the subject matter is a real right on real estate, as well as securities disputes that arise from financing activities.
Procedural rules for the committee follow established standards, including a five-year statute of limitations for hearing financing disputes. This deadline begins from the date of maturity of the disputed amount or from the date of knowledge of the incident, unless the committee determines there is a valid excuse. The committee has branches located in Dammam and Jeddah, established in January 2020 to better serve the needs of the finance sector, and enforce the Finance Companies Control Law.
The Saudi Central Bank (SAMA) established the Reconciliation Centre for Banking and Financing Disputes in October 2022 to provide a platform for resolving disputes between finance entities and customers.
The Centre is concerned with considering reconciliation requests submitted by clients of licensed finance institutions in accordance with certain conditions. These conditions include:
That the finance institution involved in the dispute be a member of the Centre.
The value of the claim submitted by the applicant for reconciliation should not exceed 100,000 Riyals.
The maturity date of the amount in question should not exceed five years.
In addition to the above conditions, the Centre is also competent to look into disputes regardless of their value if the parties involved in the dispute agree to let the Centre consider them.
The Centre is also concerned with considering cases referred to it by judicial committees such as the Banking Disputes Committee and the Committee for Finance Disputes and Violations.
The Centre operates under the Policy of Procedures Governing Reconciliation in Banking and Financing Disputes, which outlines the terms and responsibilities of all parties involved in the dispute resolution process.
The policy governs the procedures for reconciliation and outlines definitions of key terms such as the Central Bank, Reconciliation Centre, Conciliators, Disputes, and Conciliation. The Centre is established and administratively and financially affiliated with the General Secretariat of the Central Bank. The Secretary of the Centre is appointed by the Governor of the Central Bank and is responsible for supervising the Centre's operations.
Conciliators are appointed by the Governor based on the nomination of the Secretary-General and must be impartial and not have a vested interest in the dispute. It is prohibited for anyone working in the Centre to disclose information learned during their work, and for the conciliator to undertake a conciliation if they have a vested interest in the dispute or are related to it.
To conclude, the Saudi government has taken notable actions to resolve disputes in the banking and finance sectors in a fair and transparent manner. This has been done by creating key entities that serve as the foundation for dispute resolution and ensure fair treatment and impartial outcomes based on unbiased evidence and analysis. Furthermore, these entities play a vital role in stabilizing the banking and finance sector and building trust, contributing to the overall growth of the Saudi economy. The establishment of these mechanisms showcases the government's commitment to promoting fairness and transparency and ensuring the banking and finance sector remains strong and capable of overcoming challenges.
For further information, please contact Abdullah Al Tamimi and Mohammed Negm.
Published in March 2023.
