## _cr1293 - 2011. The views expressed in this document are those of the staff team and do not necessarily reflect ## Source details **Canonical URL:** [_cr1293 - 2011. The views expressed in this document are those of the staff team and do not necessarily reflect](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1293.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1293.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1293.pdf.json) --- ### Executive summary and core conclusions - CMA progress since the Capital Market Law (CML) enactment: - Issued implementing regulations and entered into information sharing arrangements regionally and with IOSCO (MMOU). - No information sharing arrangement exists with the Saudi Arabian Monetary Agency (SAMA). - Key areas for improvement: - Refinements to processes, the CML, and the Committee for the Resolution of Securities Disputes (CRSD). - Increase transparency and procedural fairness in CMA funding, discipline, communications, and conflict-of-interest management. - Publish mandatory regulatory instructions (Board directions) that are currently unpublished but mandatory. - Strengthen procedural fairness for Board-imposed disciplinary sanctions. - Consider the cost of compliance when establishing mandatory obligations. - Reconsider CMA’s publications policy to ensure appropriate transparency when Board sanctions of Authorized Persons (APs) occur. ### Regulatory structure and market structure (capital markets) - Institutional and legal setup: - CML came into legal effect on February 25, 2004; CMA established thereafter with objectives to protect investors, reduce systemic risk, and ensure fairness, efficiency, and transparency of the capital market. - CMA has civil and criminal authority; civil sanctions range from warnings to monetary penalties, property seizure, and license suspension or revocation. - CMA Board of Commissioners: five full time members appointed by Royal Order for a five-year term renewable only once; the chief executive officer is the chairman of the Board. - Tadawul Board of Directors: nine members appointed by the Council of Ministers, including representatives of MOF, MOCI, SAMA, two from listed companies, and four from APs. - Depository is a department of Tadawul. - CMA accountable to the President of the Council of Ministers; funds include fees, financial penalties, and government-provided funds; financial accounts of the CMA and Tadawul are not published. - Market structure and participation: - Tadawul operates the only licensed market; trading in equity securities, debt instruments (including sukuk), corporate bonds, and exchange traded funds (ETFs). - No derivatives market; trading via a central order book on time price priority basis. - Direct foreign participation in equities permitted only via swaps with APs; direct foreign participation permitted in funds and ETFs; Gulf Cooperation Council residents may directly trade. - At December 31, 2010, there were 97 APs engaged in regulated securities activities. - No credit rating agencies established in Saudi Arabia as of assessment. - Market predominantly retail investors; some market features absent: right to trade new-issue take-up, derivatives trading, regulated short selling, stock borrowing and lending. - Settlement practices: - Shares: settled T+0. - Sukuk and bonds: settled T+2. ### Effective regulation, supervision, and enforcement - Supervisory capabilities and powers: - CMA conducts full electronic surveillance and maintains a dedicated enforcement division; powers include inspection, investigation, civil and criminal enforcement, and ability to suspend or withdraw AP licenses. - Inspection program cycle: two to three years for APs; risk- and compliance-based; uses onsite inspections and specific regulation reviews. - CMA is a full signatory to IOSCO MMOU and a member of the Union of Arab Securities Authorities; has power to share information domestically and internationally but no confidential regulatory information release had been required to date. - Governance and potential conflicts: - Potential conflict: CMA responsible both for regulation and development of the capital market; corporate governance matters can fall under both MOCI and CMA. - CRSD and Appeal Committee act as special purpose financial tribunals enforcing CML provisions. - Transparency and publication issues: - Not all mandatory relevant rules and Board directions are publicly available. - CMA’s publications policy limits transparency of some enforcement outcomes; not all enforcement actions (and agreed settlements) are published. ### Main findings — issuer, CIS, and intermediaries - Issuers and disclosure: - Prospectuses approved by CMA must include three years’ operating financial results. - Reporting and disclosure required for significant shareholders and persons seeking control. - Minimum prospectus information must enable investor assessment of activities, financial position, management, and prospects. - Collective Investment Schemes (CIS): - Only CMA-authorized persons may operate and market a CIS; authorization requires honesty, integrity, resources, financial capacity, internal procedures, and systems. - Manager must disclose sufficient information on management, objectives, strategies, risks. - Public offer of fund units requires CMA approval; private placements allowed to certain sophisticated investors. - Foreign investment funds require CMA consent to be offered in Saudi Arabia. - Fund valuation requirements: - Investment funds: asset valuations at least on each of at least two dealing days each week when units are sold and redeemed. - Real estate investment funds: valuation at least once every six months. - Market intermediaries and capital requirements: - AP licensing required based on business category; CMA reviews business plans, manuals, policies, audited financials, and staff competence/integrity; certain personnel must be registered and pass qualification examinations. - Minimum paid up capital and net capital requirements: - Dealing, custody, and managing requires paid capital of SR 50 million. - Arranging requires SR 2 million. - Advising requires SR 400,000. - CMA monitors APs’ capital adequacy and obligations but lacks a specific or documented process to handle unexpected AP failure. ### Recommended action priorities (market regulation) - Increase transparency and public availability of all mandatory CMA Board directions and regulatory instructions. - Strengthen procedural fairness in Board-imposed disciplinary sanctions and broaden publication of sanctions against APs to enhance regulatory effect and transparency. - Establish an information sharing arrangement with SAMA. - Continue revision and updating of CML and implementing regulations as an ongoing program, involving fuller regulated-entity participation. - Integrate cost of compliance considerations into the design of mandatory obligations and supervision strategies. - Develop and document a contingency plan/process to deal with unexpected failure of an AP. ### Principles for secondary markets (Principles 25–29) — regulatory and operational observations - Regulatory oversight and authorization (Principles 25–26): - By law, the only securities exchange authorized is Tadawul; CMA must oversee Tadawul as securities exchange and depository and must approve all Tadawul rules and rule changes. - The CML does not allow for the establishment of a new securities exchange, nor of a trading system; no rules exist for oversight of an alternative trading system or new exchange. - CMA conducts ongoing regulatory supervision of Tadawul. - Transparency of trading (Principle 27): - Tadawul adopted trading instructions governing disclosure of market transactions and Depository-affecting events. - The electronic trading system continuously disseminates in real-time the 10 best bid and 10 best ask limits in the order book for each tradable listed security, including number of orders and total disclosed order quantity at each price limit. - Market information and trading data is publicly available free after a 5 minute delay. - Detecting and deterring misconduct (Principle 28): - CML and Market Conduct Regulations prohibit market manipulation, dissemination of misleading information, insider trading, front running, and other fraudulent conduct. - CMA enforces these provisions through surveillance, inspections, reporting, and enforcement action where breaches are found. - Management of large exposures and market disruption (Principle 29): - Open positions and credit exposures are limited to credit extended and guaranteed by clearing banks; electronic trading system enforces AP credit limits in real time to prevent exceedance. ### Recommended actions specific to secondary markets - Develop a strategy for the future of Tadawul, including whether it should conduct any regulatory functions and determine CML changes required if it does not remain wholly‑owned government entity under full CMA control. - Consider licensing requirements for any trading systems, including securities exchanges, with objective approval criteria and a mechanism for regulatory authorization should alternative systems arise. - Publicly demonstrate CMA’s track record of enforcement of market misconduct (appropriately specifying manipulative and other unfair practices) and remedy lack of transparency by specifying details of conduct involved in each case. ### Authorities’ comments and assessment context - Authorities provided comments disputing certain findings (for example, conflict of interest claim, publication of significant enforcement outcomes, and consistency between Companies Law and Corporate Governance Regulations). These comments were considered by the assessor but not endorsed. - Assessment context: - FSAP Update mission to Saudi Arabia: April 9 to 20, 2011. - IOSCO assessment of CMA used the 2003 IOSCO assessment methodology; other banking assessments used the 2006 Basel methodology. - Assessment based on laws, regulations, policies, CMA materials, and interviews. ### Institutional and market overview — key banking statistics (as of December 2010) - Number and composition: - There were 23 licensed banks, but only 20 are “active.” - 12 are Saudi incorporated banks, whose assets account for 98 percent of the banking system assets, or more than half of total financial system assets and 85 percent of GDP. - The seven largest banks have a combined share of assets of 85 percent. - The three largest have a combined share of about 45 percent. - The two new banks licensed in the mid-2000s account for 3 percent of banking assets. - Foreign branches have a 2 percent market share. - Capitalization, profitability, and asset quality: - Solvency ratio for the sector as a whole was above 17 percent in December 2010, having declined from about 21 percent in December 2007. - Tier 1 capital ratio is about 15 percent (end-2010). - Credit declined by 1 percent over the 12 months to December 2009, but increased by 5 percent in the following 12 months. - The nonperforming loan (NPL) ratio has remained broadly at 3 percent, with provisions covering 116 percent of NPLs in December 2010. - Loans are 54 percent of banks’ aggregate balance sheet at end-2010. - Return on assets was nearly 2 percent and return on equity 13.6 percent in December 2010, compared with 2.8 percent and 22.3 percent in December 2007. - Note: Raw data received from SAMA shows a provisioning ratio of 90 percent. ### Legal framework, powers, and recommended banking-sector reforms - Key legal observations: - The Banking Control Law (BCL) of 1966 has not been updated; many circulars are not easily and publicly available. - Approval/action of the MOF or Council of Ministers is needed for key regulatory and supervisory actions under current law. - Supervisors (agency and staff) do not benefit from clear legal protection. - A draft MOU between the CMA and SAMA is being finalized. - Selected recommended actions for banking supervision: - Update the BCL; remove the need for government approval to license banks and impose sanctions, issue regulations, conduct inspections; place SAMA’s autonomy on a statutory basis; add legal protection to supervisors; require SAMA approval for transfer of significant ownership; create a bank resolution framework; provide clear mandate for consolidated supervision and information sharing. - Issue a framework circular consolidating risk management aspects; update market risk and internal controls; strengthen large exposures and related-party definitions; cap maximum exposure (for example, remove ability to raise limit to 50 percent and consider a cap such as 25 percent of capital). - Formalize provisioning-buffer process; complete transition to Basel II/III requirements and a risk-based supervisory approach. - Establish a specific bankruptcy/regime and consider a special resolution regime for banks. - Finalize MOU with CMA and consider written agreements with foreign supervisors. ### Central securities depository, settlement mechanics, and payment systems oversight - Central securities depository (SDC) and settlement: - Around 99.5 percent of negotiable securities are immobilized and dematerialized in the SDC (a department of Tadawul). - SDC handles equities and bonds; beneficial owners identified at the individual level. - Market participants: 97 participants, of which 65 provide services as a dealer. - Settlement cycles: - Equities and ETFs: T+0 settlement cycle. - Corporate bonds and sukuks: T+2 settlement cycle. - DVP arrangements: - Equities and ETFs: DVP model 1 at investor level (real time). - Corporate bonds and sukuks: DVP model 3. - Operational controls: - Automated trading system checks seller securities availability and clearing bank payment guarantee prior to execution. - Clearing banks place specific limits for settlement positions of market participant clients. - SDC interface with SARIE reconciles net settlement positions at 3:30 p.m. and settles in SARIE with finality by 3:40 p.m. - Retail investor practice: securities and funds often prefunded; ownership transferred upon confirmation of trade enabling many sellers to access funds immediately. - Payment systems and SARIE: - SAMA-operated payment systems include SARIE RTGS, check clearing houses, SPAN (ATM/POS), SADAD, public key infrastructure, and SAMA joint network. - SARIE specifics: - Launched in 1997; last software update in May 2008. - Settlements effected on accounts of 20 direct participants; settlements deemed final and irrevocable. - SARIE settles clearing positions from 24 other systems including SPAN, SADAD, and Tadawul. - Total value settled nearly doubled between 2007 and 2010. - Transactions processed grew from 25 to 35 million between 2007 and 2010. - Switch to IBAN requirements completed. - Retail payments: - Commercial banks are sole providers; debit cards most popular with around 1.56 million transactions daily (over two-thirds are ATM withdrawals). - Program to introduce prepaid cards for 12 million unbanked and under-banked segments. - Government securities clearing: - SAMA manages clearing and settlement of government securities; registry records ownership at intermediary level (not beneficial owner). - T-bill auctions: Mondays; primary market transactions settled in SARIE on Wednesdays (T+2). - Oversight and recommended improvements: - SAMA is establishing a full-fledged payment systems oversight function; oversight policy and objectives not yet set down in a policy document. - Recommended legal foundation: consider enactment of a specific payment system law to eliminate legal uncertainty about settlement concepts (for example, netting). - Risk management: consider medium-term liquidity management improvements, clearer links between funds and securities accounts to activate intraday liquidity more automatically. - Access and governance: issue a risk-based access policy for SARIE; clarify SAMA’s oversight policy publicly; accelerate creation of oversight unit; finalize MOU with CMA and consider structured cooperation (for example, permanent joint technical working groups); consider forming an NPS Council/Committee. - Securities settlement legal improvements: include netting and segregation of client money/assets explicitly in law; accelerate move toward intra-day DVP; discuss fair and open access to settlement infrastructure for nonbank broker/dealers; integrate government securities registry interfaces with SARIE to facilitate collateralization. *International Monetary Fund — Monetary and Capital Markets Department; The World Bank — Financial Sector Vice Presidency; Middle East and North Africa Region Vice Presidency. Report: THE IOSCO OBJECTIVES AND PRINCIPLES OF SECURITIES REGULATION — REPORT ON STANDARDS AND CODES (ROSC), JUNE 2011.* ### 2011. The views expressed in this document are those of the staff team and do not necessarily reflect ### _cr1293 - 2011. The views expressed in this document are those of the staff team and do not necessarily reflect ### Executive Summary - The Capital Market Authority (CMA) has made significant progress since enactment of the Capital Market Law (CML), including issuing implementing regulations and entering into information sharing arrangements regionally and with IOSCO (MMOU). - No information sharing arrangement exists with the Saudi Arabian Monetary Agency (SAMA). - Key areas for improvement identified: - Refinements to processes, the CML, and the Committee for the Resolution of Securities Disputes (CRSD). - Increased transparency and procedural improvements regarding how the CMA funds its operations, disciplines, communicates with members, and manages potential conflicts of interest. - Publication of mandatory regulatory instructions (Board directions) currently unpublished but mandatory; Board-imposed disciplinary sanctions require stronger procedural fairness provisions. - Greater focus on the cost of compliance when establishing mandatory obligations. - Reconsideration of CMA’s publications policy to ensure appropriate transparency where Board sanctions of Authorized Persons (APs) occur. ### Introduction - Capital markets in Saudi Arabia were regulated by a ministerial committee until the CML came into legal effect on February 25, 2004 and the CMA was established. - CMA objectives under the CML: protection of investors, reduction of systemic risk, and fairness, efficiency, and transparency of the capital market. - CMA possesses civil and criminal authority with civil sanctions ranging from warnings to monetary penalties, property seizure, and license suspension or revocation. - The assessment is part of the Financial Sector Assessment Program Update, the first assessment of IOSCO Principles implementation, undertaken in Riyadh during April 2010 by Mr. Martin Kinsky using the 2003 IOSCO assessment methodology. ### Information and Methodology Used for Assessment - Assessment based on available public information relevant to CMA regulatory operations, CMA supervisory material, and direct interviews with regulated entities and CMA staff. - Official language is Arabic; official CMA documents are published in Arabic and most are also available in English. - Not all mandatory relevant rules and Board directions are publicly available. ### Regulatory Structure and Market Structure - Regulatory responsibilities of CMA: issuance of securities, listing, trading, settlement on Tadawul, credit rating agencies, investment funds, issuer disclosure and governance, licensing, supervision, and enforcement. - Banks and insurers regulated by SAMA, except for obligations as listed companies (then under CMA jurisdiction). - CMA Board of Commissioners: five full time members appointed by Royal Order for a five-year term that is renewable only once; the chief executive officer is the chairman of the Board. - Tadawul Board of Directors: nine members appointed by the Council of Ministers, includes representatives of MOF, MOCI, SAMA, two from listed companies, and four from APs. - Depository is a department of Tadawul. - CMA is accountable to the President of the Council of Ministers and funds include fees, financial penalties, and government-provided funds; financial accounts of the CMA and Tadawul are not published. - Tadawul operates the only licensed market; trading in equity securities and debt instruments (including sukuk), corporate bonds, and exchange traded funds (ETFs). - Settlement practices: - Shares: settled T+0. - Sukuk and bonds: settled T+2 (two days after trade date). - No derivatives market; trading via central order book on time price priority basis. - Mutual funds release information publicly via Tadawul but are not traded on the market. - Direct foreign participation in equities permitted only via swaps with APs; direct foreign participation permitted in funds and ETFs; Gulf Cooperation Council residents may directly trade. - At December 31, 2010, there were 97 APs engaged in regulated securities activities. - CMA reviews and approves master swap agreements between AP and foreign counterparty; clients investing through swaps are not approved by CMA; swaps immobilize securities and no voting rights may be exercised. - No credit rating agencies established in Saudi Arabia as of assessment. - Market predominantly retail investors; some market features absent: right to trade new-issue take-up, derivatives trading, regulated short selling, stock borrowing and lending. ### Effective Regulation - Saudi Arabia is a sharia law jurisdiction adopting global standards; CRSD and Appeal Committee act as special purpose financial tribunals enforcing CML provisions. - Regulatory standards are high but market requires further development. - CMA conducts full electronic surveillance and maintains a dedicated enforcement division. - CMA powers: inspection, investigation, civil and criminal enforcement, ability to suspend or withdraw AP licenses. - Inspection program cycle: two to three years for APs, risk and compliance-based, using onsite inspections and specific regulation reviews. - CMA is a full signatory to IOSCO MMOU and a member of the Union of Arab Securities Authorities; has power to share information domestically and internationally but no confidential regulatory information release had been required to date. ### Main Findings (Principle-by-Principle Highlights) - General: - Comprehensive and integrated regulatory framework now in place under CML and Implementing Regulations. - Potential conflict: CMA responsible both for regulation and development of the capital market; corporate governance matters can fall under both MOCI and CMA. - Self-Regulatory Organizations (SROs): - No SROs; Tadawul does not exercise regulatory powers though it operates the market and Depository. - Enforcement: - Broad investigation powers and dedicated enforcement division; enforcement track record lacks full transparency. - CMA may pursue civil and criminal penalties; license suspension/withdrawal for deliberate violations. - Issuers: - Public offer issuers subject to disclosure requirements including shareholder voting decisions and equality of treatment. - Prospectuses approved by CMA and must include three years’ operating financial results. - Reporting and disclosure required for significant shareholders and persons seeking control. - Minimum prospectus information must enable investor assessment of activities, financial position, management, and prospects. - Private placement activity is low. - Collective Investment Schemes (CIS): - Only CMA-authorized persons may operate and market a CIS; authorization requires criteria on honesty, integrity, resources, financial capacity, internal procedures, and systems. - Manager must disclose sufficient information on management, objectives, strategies, risks. - Public offer of fund units requires CMA approval; private placements allowed to certain sophisticated investors. - Foreign investment funds require CMA consent to be offered in Saudi Arabia. - Fund valuation: - Investment funds: asset valuations at least on each of at least two dealing days each week when units are sold and redeemed. - Real estate investment funds: valuation at least once every six months. - CMA reviews valuation methods when approving fund offerings; legal-form regulations for funds untested in courts. - Market Intermediaries: - AP licensing required based on business category; CMA reviews business plans, manuals, policies, audited financials, and staff competence/integrity; certain personnel must be registered and pass qualification examinations. - Minimum paid up capital and net capital requirements based on risk (see Principle 22): - Dealing, custody, and managing requires paid capital of SR 50 million. - Arranging requires SR 2 million. - Advising requires SR 400,000. - CMA monitors APs’ capital adequacy and obligations but lacks a specific or documented process to handle unexpected AP failure. ### Recommended Action Priorities (drawn from findings) - Improve transparency and public availability of all mandatory CMA Board directions and regulatory instructions. - Strengthen procedural fairness in Board-imposed disciplinary sanctions and broaden publication of sanctions against APs to enhance regulatory effect and transparency. - Establish an information sharing arrangement with SAMA. - Continue revision and updating of CML and implementing regulations as an ongoing program, involving fuller regulated-entity participation. - Integrate cost of compliance considerations into the design of mandatory obligations and supervision strategies. - Develop and document a contingency plan/process to deal with unexpected failure of an AP. *International Monetary Fund — Monetary and Capital Markets Department; The World Bank — Financial Sector Vice Presidency; Middle East and North Africa Region Vice Presidency. Report: THE IOSCO OBJECTIVES AND PRINCIPLES OF SECURITIES REGULATION — REPORT ON STANDARDS AND CODES (ROSC), JUNE 2011.* ### 29. Principles for secondary markets. ### 29. Principles for secondary markets. ### Regulatory structure and oversight - By law, the only securities exchange authorized is Tadawul, which the CMA must oversee as a securities exchange and depository. - The CMA must approve all rules and rule changes of Tadawul. - The CML does not allow for the establishment of a new securities exchange, nor of a trading system. - No rules, procedures, or guidance have been issued to set out how the CMA would deal with the regulatory oversight to apply to an alternative trading system or new exchange. - Dealing may occur away from the market in limited circumstances as private transactions, but over the counter activity would therefore appear to be low. - The CMA conducts full electronic surveillance of the market and has access to changes in beneficial ownership. - Securities market open positions and credit exposures are limited to the credit extended and guaranteed to an AP and its customers by a clearing bank. Clearing banks are supervised by SAMA. - Before allowing entry of an order into the order book the electronic trading system automatically checks to ensure that execution of that order will not cause the AP to exceed its daily and intra-day credit limit set by its clearing bank; any order that would cause an AP to exceed its credit limit is rejected by the electronic trading system. - Systems for clearing and settlement of securities transactions: Not assessed. ### Findings relevant to Principles 25–29 (Secondary markets) - Principle 25 (authorization and oversight): - The only securities exchange authorized under the CML in Saudi Arabia is Tadawul, and the CMA has full responsibility and authority to oversee Tadawul in its capacity both as a securities exchange and depository. - The CML does not allow for the establishment of a new securities exchange or of a trading system. - No rules, procedures, or guidance have been issued to set out how the CMA would deal with an alternative exchange or trading system. - The CMA believes that there will never be an alternative trading system or new exchange. - Principle 26 (ongoing supervision of exchanges and trading systems): - The CMA is required to regulate and develop the Tadawul, seek to develop and improve methods of systems and entities trading in securities, develop procedures that would reduce the risks related to securities transactions, and seek to achieve fairness, efficiency, and transparency in securities transactions. - The CMA conducts ongoing regulatory supervision of Tadawul. - The CML authorizes Tadawul to adopt rules, subject to approval by the CMA, to govern its operations and ensure fairness, efficiency, and transparency. - Principle 27 (transparency of trading): - Tadawul has adopted trading instructions governing the disclosure of information about any transactions on the market or affecting the Depository. - The electronic trading system continuously disseminates to Tadawul members in real-time (as well as to information vendors and others with licensing agreements with Tadawul) the 10 best bid and 10 best ask limits in the order book for each tradable listed security, including the number of orders and total disclosed order quantity at each price limit. - Market information and trading data is publicly available free after a 5 minute delay. - Principle 28 (detecting and deterring manipulation and unfair trading practices): - CML and provisions of the Market Conduct Regulations prohibit market manipulation, the dissemination of misleading information, insider trading, front running, and other fraudulent or deceptive conduct. - The CMA enforces these provisions through surveillance of market activity, inspections, and reporting, and takes enforcement action where breaches are found. - Principle 29 (management of large exposures, default risk and market disruption): - Open positions and credit exposures are limited to credit extended and guaranteed by clearing banks; the electronic trading system enforces AP credit limits in real time to prevent exceedance. ### Key operational observations affecting secondary markets - Tadawul is not an SRO and does not exercise regulatory powers; it is responsible for operating the market and the Depository. - The future development of Tadawul may envisage it achieving a self-listing with direct public participation in its ownership, but no regulatory arrangements have been set out for this scenario. - The CMA’s publication policy limits transparency of some enforcement outcomes; not all enforcement actions (and agreed settlements) are published, driven by concern about adverse effects on investor confidence. - The CMA has broad inspection and investigation powers, including over nonlicensees, and maintains a dedicated enforcement division; however, the track record of enforcement is not fully transparent due to the publications policy. - Requirements addressing pricing errors and specific authority to require notification and to take action with respect to the suspension or deferral of redemption rights (in funds) are under consideration. ### Recommended actions specific to secondary markets (Principles 25–29) - Develop strategy for the future of Tadawul, including whether it should conduct any regulatory functions and determine regulatory changes to CML required if it does not continue to be a wholly‑owned entity of government under the full control of the CMA. - Consider introducing a requirement to require licensing of any trading systems, including securities exchanges, setting out objective criteria for approval and providing a mechanism for regulatory authorization, should such a development eventuate in the future. - Demonstrate publicly the CMA’s track record of enforcement of its powers relating to market misconduct (appropriately specifying and articulating manipulative and other unfair market practices) and remedy the lack of transparency of the outcomes it has achieved by specifying for each case, the details of the conduct involved. *Source: _cr1293 - 29. Principles for secondary markets.* ### 30. The authorities provided comments on the detailed assessment report, most of ### 30. The authorities provided comments on the detailed assessment report, most of ### Authorities’ comments on four substantive findings - The assumed conflict of interest arising from the CMA’s power to appoint CRSD members is eliminated by the fact that the members of the Appeal Panel, whose decisions are final and supersede those of the CRSD, are appointed by the Council of Ministers. - Although not all enforcement outcomes are publicized, the significant ones are, since all sanctions imposed by CRSD resolutions and some of the CMA’s Board resolutions are announced to the public. - There are no inconsistencies between the Companies Law and the CMA’s corporate governance requirements. Listed Companies have to comply with the Companies Law and the mandatory articles of the Corporate Governance Regulations (CGRs). None of the mandatory Articles in the CGRs are imposed by the Companies Law, nor are they inconsistent with any provision of the Companies Law. - The CMA’s Board members may only be removed by a Royal Order, which is subject to applicable procedural rules. Thus, this aspect of the assessment is unclear and would seem to be redundant. - These comments were considered by the assessor, but not endorsed. ### Context of the assessment - Assessment performed as part of a Financial Sector Assessment Program (FSAP) Update; mission to Saudi Arabia during April 9 to 20, 2011. - Assessment used only the essential criteria in the methodology and was conducted by Peter Hayward (IMF consultant) and Cédric Mousset (World Bank). - Assessment based on review of laws, regulations, policies and practices in place at the time, including: - the 1966 Banking Control Law (BCL) and its implementing ministerial decision, - the 1957 SAMA Charter, - circulars issued by SAMA, - the Code of Corporate Governance issued by the Capital Markets Authority (CMA), - a self-assessment, detailed interviews with staff from SAMA, internal reports, external meetings with banks, external audit firms and a lawyer. - Assessment conducted using the 2006 methodology published by the Basel Committee for Banking Supervision. ### Institutional and market overview — key statistics and structure - As of December 2010: - There were 23 licensed banks, but only 20 are “active.” - 12 are Saudi incorporated banks, whose assets account for 98 percent of the banking system assets, or more than half of total financial system assets and 85 percent of GDP. - The seven largest banks have a combined share of assets of 85 percent. - The three largest have a combined share of about 45 percent. - The two new banks licensed in the mid-2000s account for 3 percent of banking assets. - Foreign branches have a 2 percent market share. - Capitalization, profitability, and asset quality: - Solvency ratio for the sector as a whole was above 17 percent in December 2010, having declined from about 21 percent in December 2007. - Tier 1 capital ratio is about 15 percent (end-2010). - Credit declined by 1 percent over the 12 months to December 2009, but increased by 5 percent in the following 12 months. - The nonperforming loan (NPL) ratio has remained broadly at 3 percent, with provisions covering 116 percent of NPLs in December 2010. - Loans are 54 percent of banks’ aggregate balance sheet at end-2010. - Return on assets was nearly 2 percent and return on equity 13.6 percent in December 2010, compared with 2.8 percent and 22.3 percent in December 2007. - Note: Raw data received from SAMA shows a provisioning ratio of 90 percent. ### Preconditions and infrastructure - Financial infrastructure improvements: - Collateral regime being progressively improved, especially for real estate; enforcement of real estate collateral remains difficult and lengthy; situation worse for movables. - A package of five draft laws recently approved by the Shura Council and submitted to the Council of Ministers includes an Enforcement Law expected to improve enforcement procedures for all types of collateral. - Saudi Credit Bureau has modernized credit reporting. - Accounting and soundness frameworks: - Saudi Arabia implements International Financial Reporting Standards (IFRS) for banks and insurance companies. - Listed companies apply local generally accepted accounting principles and auditing standards set by Saudi Organization for Certified Public Accountants, which are not as comprehensive and detailed as IFRS and International Standards of Auditing (ISA). - No formal deposit insurance scheme. - No need for emergency liquidity assistance (ELA) to any bank in recent years; conditions for SAMA to provide ELA would be determined on a case-by-case basis. ### Main findings — summary and recommended priorities - General improvements since the 2004 FSAP: - SAMA introduced Basel II, used Pillar 2 to foster improvements in banks’ risk management and capital planning. - Risk-based approaches implemented; staffing around 200 people (a doubling over the past five years). - SAMA initiated introduction of Basel III requirements. - Objectives, independence, powers, transparency, and cooperation (CP1): - BCL is old (1966) and should be updated; it provides for less formal independence and authority than exercised in practice. - Recommended statutory changes: remove need for government approval to license banks and impose sanctions, issue regulations, conduct inspections; place SAMA’s present autonomy on a statutory basis; add legal protection to supervisors; require SAMA’s approval for transfer of significant ownership; create a bank resolution framework; provide clear mandate for consolidated supervision and information sharing. - Licensing and structure (CPs 2–5): - SAMA’s prudent licensing approach could benefit from a legal definition of SAMA’s objectives and improved disclosure of expectations for new banks. - No published objectives for supervision; SAMA should publish detailed criteria for licensing new banks and withdraw the requirement that new licensees should “add value.” - Legal requirements for SAMA to approve any new bank outlet could be removed and risks covered within a risk-based process (ex post rather than ex ante). - Legal basis for SAMA to approve changes in ownership should be strengthened. - Prudential regulation and requirements (CPs 6–18): - Substantial efforts to introduce Basel II; need improved regime for large exposures and connected parties. - Much risk management guidance appears in various Basel II documents (which do not apply to foreign branches); recommendation to issue a framework circular consolidating risk management aspects and update market risk and internal controls. - Widespread bank losses from the 2009 failure of Al-Gossaibi & Bros. Co. and the Saad Group suggest possible weaknesses in credit risk management. - In a system with high single-name concentration, attention to individual large exposures should be intensified during on-site inspections. - The possibility for SAMA to allow large exposures of as much as 50 percent of capital should be removed (recommendation to cap maximum exposure at, for example, 25 percent of capital). - Definition of related parties needs to be strengthened to ensure close family relationships are taken into account. - Methods of ongoing banking supervision (CPs 19–21): - Progress in implementing a risk-based approach; transition should be completed. - Supervisory regime still includes broad ex ante approval requirements (opening branches, lending to a nonresident, releasing financial statements, launching new products). - On-site process remains intrusive, relying on full-scope examinations and focused ones; schedule for full-scope examinations should be better defined to avoid crowding effects. - Examinations should focus more on actual risks and banks’ ability to manage them; increased attention to branches of foreign banks. - More systematic on-site verification of prudential reporting may be needed. - Accounting and disclosure (CP 22): - SAMA encouraged banks to build prudent capital and provisioning buffers; buffers defined as part of the ICAAP process; provisioning buffers result from pragmatic decisions by SAMA’s senior management and would benefit from formalization. - SAMA has introduced IFRS and ISA for banks and auditors and introduced Pillar 3 disclosure requirements in 2008. - Corrective and remedial powers of supervisors (CP 23): - SAMA’s proactive supervision means formal enforcement action has rarely been needed, but removal of statutory need for government approval of exercise of its powers would safeguard independence. - Recommendation to establish a specific bankruptcy regime for banks and ideally a specific resolution regime. - Consolidated and cross-border banking supervision (CPs 24–25): - SAMA’s consolidated supervision has been effective, but cross-border expansion by some banks could challenge group managements and supervisors. - SAMA has good contacts with the CMA and foreign supervisors. - Draft memorandum of understanding (MOU) with the CMA should be finalized and exchange of inspection reports and common on-site work initiated. - SAMA should consider written agreements with foreign supervisors to make cooperation effective in any unforeseen emergency. ### Table summary excerpt - Core Principle 1.1: Responsibilities and objectives — "SAMA’s objectives are not defined." - Core Principle 1.2: Independence, accountability and transparency — "The approval/action of the Ministry of Finance (MOF) or Council of Ministers is needed for key regulatory and supervisory actions." *International Monetary Fund — Monetary and Capital Markets Department; The World Bank — Financial and Private Sector Vice Presidency and Middle East and North Africa Vice Presidency.* ### 1.3 Legal framework The BCL has not been updated, nor are all circulars easily and ### _cr1293 - 1.3 Legal framework The BCL has not been updated, nor are all circulars easily and ### Legal framework, powers, protection, and cooperation - 1.3 Legal framework: The BCL has not been updated, nor are all circulars easily and publicly available. - 1.4 Legal powers: The approval/action of the MOF or Council of Ministers is needed for key regulatory and supervisory actions. - 1.5 Legal protection: Supervisors (agency and staff) do not benefit from clear legal protection. - 1.6 Cooperation: A draft MOU between the CMA and SAMA is being finalized. ### Banking supervision—summary findings by topic (CPs) - 2. Permissible activities: Activities effectively controlled and term ‘bank’ protected. - 3. Licensing criteria: Core criteria used by SAMA to review licensing applications are not made public. Core licensing criteria include a need for a new bank to “add value,” which is unrelated to safety and soundness. - 4. Transfer of significant ownership: There are no legal provisions on the transfer of significant ownership. - 5. Major acquisitions: Limits on investments are applied and acquisitions subjected to supervisory approval. - 6. Capital adequacy: Minimum capital ratios well exceed Basel requirements. - 7. Risk management process: Key risk management requirements can be only indirectly imposed on banks and branches of foreign banks. - 8. Credit risk: Recent large corporate failures may require some strengthening of credit risk regulation. - 9. Problem assets, provisions, and reserves: Portfolio approach may need to be supplemented by more on-site assessment of individual risks. - 10. Large exposure limits: The large exposure limit can be raised to 50 percent (a possibility sometimes used by SAMA). Supervision is not implemented systematically during full scope on-site inspections (definition of connected parties). - 11. Exposure to related parties: The definition of related parties is not comprehensive (for example, senior management, close family members). Supervision is not implemented systematically during full scope on-site inspections (definition of related parties). - 12. Country and transfer risks: Risks are extensively reported and are low. - 13. Market risks: Existing guidance does not cover all derivative activities, nor incorporate recent best practices. Some core requirements are not binding. - 14. Liquidity risk: Basel III approach is to be implemented. - 15. Operational risk: A capital charge is applied and operational risk management policies are discussed with supervisors. - 16. Interest rate risk in the banking book: Risk levels are low but are considered in the internal capital adequacy assessment process. - 17. Internal control and audit: Framework is comprehensive but could be updated. - 18. Abuse of financial services: On-site inspection plan generates concentration on a few years (see CP 20). - 19. Supervisory approach: Supervisory risk ratings are not differentiated. Risk profiles are sometimes not updated at least annually. - 20. Supervisory techniques: The on-site full scope examination plan generates a concentration on a few years (and a lack of such examinations during others). Limited scope examinations remain primarily compliance oriented. Full-scope examinations do not always pay attention to assessing adequacy of provisioning of individual exposures. Meetings with the full Board are not organized. - 21. Supervisory reporting: Full-scope on-site inspections do not always assess the reliability of electronic return management system (ERMS) returns. - 22. Accounting and disclosure: The process followed to set provisioning buffers which banks should hold is not formalized. - 23. Corrective and remedial powers of supervisors: The exercise of formal supervisory action requires an approval outside SAMA (for example, MOF). There is no specific bankruptcy regime for banks. - 24. Consolidated supervision: SAMA does not have a clearly defined power to conduct consolidated supervision. Banks’ group internal control/risk management frameworks are not always assessed during full-scope on-site inspections. - 25. Home-host relationships: The BCL does not contemplate a lifting of its confidentiality requirements when necessary. There are no MOU with foreign supervisors. ### Table 2 — Recommended Action Plan to Improve Compliance with the Basel Core Principles (selected recommendations) - 1.1 Responsibilities and objectives: Introduce better definition of SAMA’s objectives (public statements in the short term, revised law in the medium term). - 1.2 Independence, accountability and transparency: Revise legal requirements to remove the need that the MOF or Council of Ministers approve or take action to exercise key regulatory and supervisory powers. - 1.3 Legal framework: Update the BCL (see details under other CPs), codify all circulars and make them publicly available. - 1.4 Legal powers: Revise legal requirements to remove the need that the MOF or Council of Ministers approve or take action to exercise key regulatory and supervisory powers. - 1.5 Legal protection: Introduce clear legal protection for supervisors. - 1.6 Cooperation: Finalize the draft MOU between the CMA and SAMA. - 3. Licensing criteria: Make SAMA core criteria for reviewing license applications public and remove the need for a new bank to “add value.” - 4. Transfer of significant ownership: Introduce legal provisions on the transfer of significant ownership. - 7. Risk management process: Issue circular covering key risk management requirements. - 8. Credit risk: Strengthen further credit risk regulation. - 10. Large exposure limits: Update the large exposure regulation (for example, remove possibility to raise limit to 50 percent, derivatives risk weighting). Implement supervision more systematically (for example, definition of connected parties). - 11. Exposure to related parties: Broaden the definition of related parties to include close family members and key staff. Implement supervision more systematically (for example, definition of related parties). - 13. Market risks: Update requirements to cover all derivative activities, incorporate recent best practices, and make core requirements binding. - 17. Internal control and audit: Internal control requirement should be updated. - 18. Abuse of financial services: Better define the examination program to avoid crowding effects. - 19. Supervisory approach: Differentiate banks’ risk ratings more and update risk profiles at least annually. - 20. Supervisory techniques: Better define the full-scope examination program to avoid crowding effects. Focus limited scope examinations more on actual risks and banks’ ability to manage them. Pay more attention on-site to assessing large exposures and the adequacy of provisioning of individual exposures. Consider introducing meetings with the full Board as part of the off-site process. - 21. Supervisory reporting: Ensure that the reliability of ERMS returns is systematically assessed on-site. - 22. Accounting and disclosure: Formalize the process followed to set provisioning buffers which banks should hold. - 23. Corrective and remedial powers of supervisors: Remove the need for any approval/action outside SAMA to exercise formal supervisory action (for example, MOF). Establish a specific bankruptcy regime for banks, and consider introducing a special resolution regime. - 24. Consolidated supervision: Revise legal requirements to give SAMA a stronger legal basis to conduct consolidated supervision. Review more systematically banks’ group internal control/risk management frameworks during on-site inspections. - 25. Home-host relationships: Update the BCL to lift confidentiality requirements when necessary (for example, to share information for supervisory purposes). Establish MOUs with relevant foreign supervisors. ### Authorities’ response (selected points) - Saudi Arabia supports the FSAP, which intends to promote stability of the financial systems and best supervisory practices. - The authorities are broadly in agreement with the overall findings, but have reservations on certain aspects of the assessment. - The authorities believe that the grading of certain Core Principles (CP) is not reflecting the substantial progress made in strengthening the supervisory oversight. For example, all the requirements of CP 1(3) and 1(4) are fully met, and the assessment does not identify any material deficiencies. - Regarding CP 1(5), legal protection of SAMA or its staff has never been an issue given that there is adequate protection available in the general laws and no supervisory action has ever been challenged in a court of law. - The authorities believe that the grading of CP 4, 10 and 11 is not justified and, based on the comments conveyed earlier, should have been upgraded. In fact, CP 10 (large exposure limits) was downgraded from an initially higher rating without any explanation. - The authorities also believe that the existing BCL of Saudi Arabia is serving the purpose well and provides the necessary legal framework for implementing international standards and for taking all the required supervisory actions. The authorities will review the other FSAP recommendations and take appropriate actions in line with the existing legal and regulatory framework. ### Systemically important payment systems — key institutional and operational findings - The assessment is based on the Core Principles for Systemically Important Payment Systems (CPSIPS) and was conducted in the context of the FSAP Update to Saudi Arabia in April 2011. - The NPS in Saudi Arabia is comprehensive and designed to serve the needs of a broad set of users; the infrastructure operated by SAMA is primarily concentrated on payments in Saudi riyals. - SAMA-operated payment systems include: SARIE RTGS; check clearing houses operated at SAMA branches; automated teller machine (ATM) and point-of-sale services provided through the SPAN system; electronic bill presentment and payment processed by the SADAD system; the public key infrastructure; and the SAMA joint network. - Legal and regulatory framework includes: Central Bank Law; Banking Control Law (BCL); Securities Market Law; Competition Law; Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Law; Electronic Transaction Law; and Central Bank Regulations having the power of Law. SAMA has issued operating rules and procedures for the various payment systems it operates. - There is not a payment system law that addresses all the key concepts related to payments and settlement. - SARIE specifics: - SARIE was launched in 1997, and has been periodically enhanced, with the last software update in May 2008. - Settlement is effected on the accounts maintained by 20 direct participants with SAMA; all settlements done on SARIE are deemed final and irrevocable. - SARIE settles clearing positions from 24 other systems including SPAN, SADAD, and Tadawul. - With the exception of Tadawul positions, all the other clearing positions are aggregated and settled on an overall net basis towards the end of the SARIE operating cycle. - The total value settled has nearly doubled between 2007 and 2010. - The number of transactions processed has grown from 25 to 35 million between 2007 and 2010. - The switch to IBAN requirements for accounts has already been successfully completed. - Retail payments and inclusion: - Commercial banks are the sole providers of retail payment products. - Debit cards are the most popular, with around 1.56 million transactions on a daily basis; however, over two-thirds of these are for ATM withdrawals. - SAMA and the banks are involved in a massive program to foster inclusion to payment services by introducing prepaid cards for the 12 million-strong unbanked and under-banked segments. - Government securities clearing and settlement: - SAMA manages the clearing and settlement of government securities, including government development bonds, floating rate notes, and treasury bills (t-bills). - SAMA operates a registry with securities accounts for banks investing in government securities. - Currently only banks and government agencies (mainly pension funds) can participate in t-bill auctions, which take place on Mondays and are based on competitive bidding. - Transactions in the primary market are settled in SARIE on Wednesdays (T+2). - Ownership is registered at the level of the intermediary and not the beneficial owner. *Source: _cr1293 - 1.3 Legal framework The BCL has not been updated, nor are all circulars easily and* ### 10. There is a single common central securities depository for corporate securities— ### 10. There is a single common central securities depository for corporate securities— ### Central securities depository and market participation - Around 99.5 percent of negotiable securities in Saudi Arabia are immobilized and dematerialized in the SDC. - The SDC handles both equities and bonds, and is used to facilitate transfer of ownership arising from secondary market transactions. - Commercial banks, broker-dealers, and other financial institutions are direct participants in the SDC (authorized persons). - There are 97 market participants, of which 65 provide services as a dealer. - Beneficial owners are identified at the individual level in the SDC, which is a department of Tadawul. ### Securities settlement procedures and mechanics - Settlement cycles: - Equities and exchange-traded funds (ETFs): T+0 settlement cycle. - Corporate bonds and Islamic bonds (sukuks): T+2 settlement cycle. - Delivery-versus-payment (DVP) arrangements: - Equities and ETF transactions are settled real time according to a DVP model 1 arrangement at the level of investors. - Corporate bonds and sukuks are settled according to a DVP model 3 arrangement. - Operational controls: - Trades are executed only where the seller has the securities in its account at the SDC and the relevant clearing bank will guarantee payment for the securities. - The automated trading system automatically checks these conditions and will not execute trades that do not meet both conditions. - Market participants (broker/dealers) are required to settle the cash leg through a commercial bank of their choice, the clearing bank. - Settlement at investors’ level: the securities and funds legs are both settled on a gross basis throughout the day. - Settlement for corporate bonds/sukuks: the securities and funds legs are both settled on a net basis at the end of the settlement cycle. - Clearing bank procedures: - Clearing banks place specific limits for the settlement positions of their market participant clients. - The SDC has an interface with SARIE through which the net settlement positions for the clearing banks are reconciled within SARIE at 3:30 p.m. on all trading days, which is then settled in SARIE with finality by 3:40 p.m. - Retail investor practice: - Given the retail nature of most transactions, individual investors are required to make their securities and funds available prior to executing the transaction. - Ownership of securities is transferred upon confirmation of trade and the seller is—in many cases—able to access funds immediately after confirmation and transfer of ownership. ### Payment and securities settlement systems oversight - Legal and institutional arrangements: - The power of SAMA to oversee the payment systems is stated in the central bank and banking laws; reference to SAMA oversight authority is general rather than detailed. - The CMA is empowered to oversee and regulate securities settlement aspects. - SAMA oversight function and status: - SAMA is in the process of establishing a full-fledged payment systems oversight function. - The payment systems oversight function has de facto been performed regularly by SAMA BTD. - BTD is in the process of staffing an oversight unit operationally independent from the units that operate the payment systems. - SAMA has not set down its oversight policy and objectives in a policy document. - SAMA classifies payment systems as: (i) SIPS; (ii) retail systems of systemic importance; (iii) retail systems of prominent importance; and (iv) other retail payment systems. - Oversight tools used by SAMA: - Monitoring, dialogue and moral suasion, and on-site inspections are the most relevant. - Issuance of regulations, sanctions and production, and publication of statistics and other analysis are less often used. - In 2009, SAMA conducted a comprehensive NPS review in Saudi Arabia in close consultation with stakeholders. - Cooperation with CMA and stakeholders: - Cooperation exists informally; SAMA and the CMA currently engage in dialogue, but there are no formal memoranda of understanding (MOU). - SAMA consults and co-operates with payment system stakeholders on specific operational matters and holds regular senior-level meetings. - No NPS Council/Committee exists. ### Main findings—summary (selected observations and recommended actions) - General observance: - SARIE is in observance of most of the CPSS CPSIPS. - SAMA is in full or broad observance of central bank responsibilities in applying the principles. - Recommended actions (extracted and paraphrased from Table 1): - Legal foundation (Core principle 1): - Although SARIE ORR is sound, the lack of a specific payment system law can give rise to uncertainty on the legal framework for settlement. SAMA should start a process that could lead to the enactment of such a law. - Understanding and management of risks (Core principles 2 and 3): - Financial risks are properly managed in SARIE. Medium-term improvements to liquidity management could include less discretionary rules and a more straightforward link between the funds accounts and the securities accounts of banks to activate intraday liquidity facilities in a more automatic fashion. - Settlement (Core principles 4, 5 and 6): (recommendations summarized in table) - Security, operational reliability, and contingency arrangements (Core principle 7): (recommendations summarized in table) - Efficiency and practicality (Core principle 8): - Operating hours and the daily business cycle may need extension; the settlement calendar for other systems in SARIE should be reconsidered. - SAMA is engaged in discussions with commercial banks on operating hours. - SAMA could engage participants to verify whether settlement of a single netting position for all retail systems exposes systems to operational spillover effects. - Criteria for participation (Core principle 9): - SAMA should issue a risk-based access policy and disclose criteria for fair and open access to SARIE by financial institutions, including possible access by nonbank financial institutions. - Governance (Core principle 10) and Central Bank responsibilities (A B, C and D): - SAMA’s role might be further clarified in an upcoming ministerial decree. - Payment system oversight could be covered by the Payment System Law discussed under CP 1. - SAMA should clarify its oversight policy stance in a publicly available document. - SAMA should accelerate creation of a full-fledged oversight unit and consider placement to enhance visibility. - SAMA and the CMA are encouraged to finalize their MOU and include specific references to joint interaction areas; structured cooperation could take the form of permanent joint technical working groups. - An NPS Council/Committee could be constituted as a consultative and cooperative body comprising representatives from relevant stakeholders. ### Considerations for other payment and securities settlement systems - Retail systems risk aggregation (check clearing, SPAN, SADAD): - All retail payment systems settle in SARIE; individual systems send final multilateral net clearing positions to SARIE, which aggregates and performs a consolidated final net settlement. - In the event of a credit problem, liquidity support mechanisms might not be available because they need good quality collateral; absent credit by SAMA, the only recourse would be to unwind. - Unwinding would be extremely complicated due to multilateral netting and would raise order and priority issues. - A comprehensive risk management framework could be studied, perhaps combining net-debit limits in individual systems with a consolidated settlement guarantee fund. - Securities settlement systems: - Securities settlement systems work safely and efficiently, although some improvements are envisaged. - A detailed assessment against CPSS-IOSCO recommendations for SSS was not within the scope of the FSAP Update; the CMA provided a self-assessment of corporate securities based on the recommendations. - Legal framework improvements suggested: - Formal inclusion in the law of the concept of netting. - Inclusion in the law of segregation of client money and client assets (currently covered by the authorized persons regulation). - Operational recommendations: - The CMA, Tadawul, and SAMA should accelerate plans to move towards intra-day settlement based on DVP. - Fair and open access to settlement infrastructure by broker/dealers, particularly those not belonging to a bank, should be discussed in the context of reform. - The government securities registry might be further integrated through interfaces with SARIE to facilitate collateralization in the RTGS system and settlement of secondary market transactions. ### Authorities’ response (summary) - Authorities’ acknowledgements and assessor reactions: - The assessor acknowledged the high level of standardization in the Saudi financial market. - The assessor highlighted that the BCL provides SAMA with a legal framework for payment systems. - The assessor recognized that securities settlement risk is mitigated by the fact that short-selling is not allowed and stocks are prefunded. - Items not endorsed by SAMA: - SAMA saw no compelling reason to expand SARIE membership. - SAMA did not agree that the current oversight regulation is insufficiently detailed for the overseer to fully exert its power and did not endorse creation of a specific oversight unit. - SAMA stated they believe the current framework is the most appropriate for the Saudi market, while remaining open to improvements. *Source: IMF staff report content unit _cr1293 - 10. There is a single common central securities depository for corporate securities—* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1293.pdf_