Saudi Arabia Focus
Rafiq JafferPartner,Banking & Finance
Rawan AlsawadTrainee Lawyer,Banking & Finance
It is common practice in most jurisdictions for banks and other financial institutions to be the primary providers of financial services and products. This has historically resulted in such institutions to predominantly monopolise access to financial data allowing them to keep track of consumers habits and trends. Such data can include, amongst other information, consumers’ expenditure on items such as utility bills, travel, lifestyle and shopping.
To achieve a more transparent and balanced access to such data within the banking industry, there has been a rapid and aggressive development in what is referred to as ‘Open Banking’. It is important to note that the concept has allowed significant change to the banking industry, subsequently redefining banking strategies, procedures, and innovations attracting global attention. Many regions, including Europe and the Middle East, have adopted the Open Banking system leading to the emergence of new forms of digital financial innovation, destruction of existing bank monopolies, and enhanced accessibility and transparency to consumer data. A better use of clients' financial data contributes to the overall improvement of the financial infrastructure of the country.
Open Banking is a system that allows consumer related data including personal and sensitive financial information held by financial institutions to be shared safely and securely with third parties to create innovative solutions to tackle problems that were not addressed or identified in the financial sector before. Third parties may include, but are not limited to, financial services industries, tech start-ups, software developers, and financial institution service providers.
Subject to any applicable personal and privacy laws, third-party providers of financial institutions can gain access to information in a safe and cost-effective manner by using Application Programming Interfaces (“API”). This paves the way for the development of solutions that are convenient, accessible, and affordable which in turn makes consumers' lives easier. By expanding the relationship between banks and third-party providers, Open Banking facilitates the entry of new start-ups companies making a favourable impact on the financial services industry and encourages healthy competition.
In January 2021, the Saudi Central Bank (“SAMA”) announced the Open Banking Policy aiming to “develop a digital economy, enabling Financial Intermediaries to support private sector growth through open financial services to new types of players.” The Open Banking program is one of the initiatives of the FinTech strategy, and one of the pillars of the Financial Sector Development Program under Saudi Vision 2030 (“Open Banking Program”).
The Open Bank strategy which was approved by the Council of Ministers in May 2022, intends to transform the Kingdom of Saudi Arabia into a worldwide FinTech hub where technology-based innovation in financial services serves as the basis for enhancing the economic empowerment of individuals and society.
In November 2022, SAMA announced the issuance of the Open Banking Framework as one of the key outputs of the Open Banking Program (the “Open Banking Framework”). The Open Banking Framework will include a comprehensive set of legislation, regulatory guidelines, and technical standards based on international best practices to enable banks and FinTechs to provide Open Banking services in the Kingdom of Saudi Arabia.
The first phase of Open Banking services will focus on the introduction of account information service (“AIS”), whereas the second phase of the framework will focus on the payment initiation service (“PIS”). In accordance with the announcement published by SAMA, SAMA is tracking the progress of banks and FinTech to ensure that they are prepared to deliver Open Banking services by the first quarter of 2023.
The key elements of the regulatory framework are expected to comprise of Glossary, Use Cases, Business Rules and KSA Standards. The ‘Glossary’ defines key terms used throughout the Open Banking Framework. The ‘Use Cases’ refers to an overview of the open banking evaluation and prioritization framework, together with details of the use cases to be enabled by each new release. The ‘Business Rules’ provide clear directives on the requirements that must be adhered to in order for banks and FinTechs to provide Open Banking services, with items related to specific use cases clearly articulated. The ‘KSA Standards’ comprise of customer experience guidelines, API specifications, implementation requirements and operational guidelines.
Open Banking Lab provides a standardized platform for Open Banking participants to develop, test and certify their Open Banking offerings to ensure compliance with the Open Banking Framework. The simulated Open Banking Lab offers an isolated connection and execution of software for independent testing and certification purposes.
The simulated testing platform is to validate several new business models and consider the regulator and technical constraints, all of which were important aspects acknowledged during the process of establishing the Open Banking Framework. The lab is curated as a foundation to enhance innovation and speed up the development of Open Banking in the Kingdom of Saudi Arabia. Numerous FinTech companies were granted permission by SAMA to offer Open Banking services within the confines of the SAMA regulatory sandbox.
The key elements of Open Banking Lab compromise of sandbox environment, ready use cases and testing and certification. The ‘sandbox environment’ refers to the lab that provides a simulation of a real bank's Open Banking APIs. Open Banking participants can build and test their applications in a safe and secure environment. ‘Ready use cases’ refers to the lab designed to support a wide range of end retail and corporate use cases. Mock data is available for the participants to test their solutions. ‘Testing and Certification’ allows participants to easily access the lab's conformance suites to test and certify their APIs to ensure the conformance with the Open Banking Framework.
To utilise the Open Banking Program, an Open Banking participant needs to be enrolled in the Open Banking Program Registry. The objective of the registry is to register all FinTechs with an interest in Open Banking, as well as keep them informed regarding any relevant initiative or timescale.
If you would like to have access to the Open Banking Framework and the Open Banking Lab, please contact the Open Banking Program at ob@sama.gov.sa.
For further information,please contact Rafiq Jaffer and Rawan Alsawad
Published in March 2023
