Saudi Arabia's New Payment Regulations: Shaping the Future of Payment Transactions
Financial Services Focus
Ambreen Bidiwala Senior Counsel,Banking & Finance
Rohma HabibAssociate,Banking & Finance
Rawan AlsawadAssociate,Banking & Finance
In the ever-evolving landscape of the Kingdom of Saudi Arabia (“KSA”), where rapid changes and advancements are constantly reshaping the country, it comes as no surprise that payment regulations of 2022 have recently undergone a transformation and have been replaced by the new Implementing Regulations of the Law of Payments and Payment Services promulgated on 24/11/1444 H (corresponding to 23/06/2023 G) (“New Regulations”). The Saudi Central Bank (“SAMA”) which serves as the central bank and financial regulator of KSA, has implemented proactive strategies to effectively respond to the rapidly evolving characteristics of KSA’s financial industry. The New Regulations were enacted with the objective of augmenting financial stability, fostering technological advancement, and guaranteeing the seamless operation of payment services across the Kingdom.
The New Regulations outline specific payment service activities (as well as certain exclusions) and encompass a range of areas, including electronic payments, digital wallets, and other financial technologies. The overarching objective is to foster a secure, efficient, and inclusive regime that provides support to both individuals and businesses in KSA. This article will delve into the key changes brought about by the New Regulations issued by SAMA, shedding light on their implications from a more practical perspective.
In the ever-evolving landscape of the Kingdom of Saudi Arabia (“KSA”), where rapid changes and advancements are constantly reshaping the country, it comes as no surprise that payment regulations of 2022 have recently undergone a transformation and have been replaced by the new Implementing Regulations of the Law of Payments and Payment Services.
Money remittance was classified as a payment service activity under the old regulations. However, the New Regulations have introduced a revised categorization of payment services, resulting in the specific exclusion of money remittances from its regulatory scope. Money remittance essentially involves the process of transferring monies from one place to another, without creating a payment account, usually across international borders. This transaction is commonly facilitated by dedicated remittance service providers. This exclusion signifies the efforts of SAMA to clarify the regulatory structure governing payment service providers and place money remittances outside their ambit. However, a license from SAMA may be required under the Rules Regulating Money Changing Business.
The New Regulations also include various other exclusions - an important one to highlight is that of services provided by technical service providers including but limited to technical services, however, we note that there is no clarity in the New Regulations in terms of which services may fall within the purview of this exclusion and what would be the interplay between SAMA and Saudi Payments in relation to regulation and oversight of technical service providers.
The New Regulations also include licensing requirements for payment system operators. SAMA also has the power to classify a payment system as a ‘systemically important payment system’ subject to certain criteria (such as risks to the financial stability in KSA or could trigger systemic disruption to other payment systems due to the size, criticality and interconnectedness to the financial markets and the absence of any other alternative payment systems; degree to which the payment system is connected to the Financial Market Infrastructure within or outside KSA including settlement and clearing systems; volume of the orders transferred, cleared or settled within a normal day by the payment system; etc.) and such payment system operator is required to comply with the rules, regulations, guidelines and standards as prescribed. Further, a national payment system, which is a payment system directly or indirectly owned or operated by SAMA shall be licensed pursuant to a resolution passed by the Governor of SAMA.
Further, under the New Regulations, SAMA has the authority to grant exemptions to cross-border payment systems operators from obtaining a license based on certain conditions. These conditions may include but are not limited to the payment system operator falling within the scope of application outlined in Article (4) of the New Regulations and operating in other countries in addition to the KSA. When considering an exemption, SAMA takes into account factors such as the regulatory regime and supervision governing the payment system outside KSA and whether SAMA has an adequate basis for co-operation with the overseas authorities. If a cross-border payment system meets the specified criteria, the payment system operator must establish a valid memorandum of understanding with the relevant authority in the foreign country which shall demonstrate that the jurisdiction in question is regulated on an equivalent basis or otherwise enables SAMA to supervise such payment system in terms of information exchange, cooperation and enforceability.
While payment initiation services and payment account information services were included in the scope of payment services under the old regulations, under the New Regulations, specific licensing fees and capital requirements have been spelled out for licenses for payment initiation services and payment account information services.
As was required under the old regulations, payment service providers shall comply with the Outsourcing Rules issued by SAMA when outsourcing any activities. A no-objection letter from SAMA is required before engaging in material outsourcing and it must be ensured that the outsourcing service provider complies with applicable laws and regulations. Under the old law, the liability for compliance with applicable laws and regulations remained with the payment service provider, regardless of outsourcing arrangements. The New Regulations further clarifies that any outsourcing shall not result in those holding senior positions to delegate the obligations of the payment service provider to comply with the provisions of the New Regulations.
The regulatory requirements in relation to limited network service providers have also been revised by SAMA – the nature of these services includes cash value stored on a payment instrument which cannot be redeemed or transferred to another account but can be used to make transactions only from specific service providers. Under the old regulations, limited network providers were required to notify SAMA if certain payment transaction thresholds were exceeded and further, SAMA had the discretion to require such service provider to apply for a license if deemed necessary. Under the New Regulations, all limited network service providers are required to register with SAMA as a limited network service provider as SAMA may deem appropriate. In the event the payment transactions exceed or are likely to exceed prescribed thresholds, the limited network service provider shall notify SAMA. Further, SAMA may require such provider to apply for a license under the New Regulations.
In conclusion, the recent implementation of the New Regulations in KSA signifies a noteworthy step in the Kingdom’s continuous endeavours to improve and update the financial regulatory landscape. It is important to note that the New Regulations have retained the requirement for a payment service provider licensed by SAMA to be locally incorporated in KSA. Given that the New Regulations are fairly recent, it needs to be seen how SAMA will practically implement them to payment service providers with innovative payment services looking to enter the Saudi Market.
For further information,please contact Ambreen Bidiwala, Rohma Habib, and Rawan Alsawad.
Published in February 2024
