## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13214.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13214.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13214.pdf.json) --- ### Overview and purpose - Assessment of the systemically important payment systems in the Kingdom of Saudi Arabia (KSA) based on the CPSS Core Principles for Systemically Important Payment Systems (CPSIPS). - Conducted in the context of the Financial Sector Assessment Program (FSAP) Update to the KSA (April 2011). - Assessor of the CPSIPS: Massimo Cirasino. - The national payments system (NPS) efficiently serves a broad set of users; infrastructure primarily concentrated on payments in riyals and characterized by a high level of standardization. ### NPS infrastructure components - Systems and services operated or provided by SAMA and related entities: - Saudi Arabian Riyal Interbank Express (SARIE) real time gross settlement (RTGS) system: processes a wide range of large-value and small-value payments; provides settlement facilities for clearing systems and for transactions executed at Tadawul stock exchange. - Check clearing houses operated at SAMA branches. - Automated teller machine (ATM) and point-of-sale services provided through Saudi Payments Network (SPAN). - Electronic bill presentment and payment processed by SADAD (national electronic bill presentment and payment service). - Public Key Infrastructure (PKI) providing advanced security facilities. - SAMA Joint Network (SJN): highly secured communications network. - SPAN, SADAD, check clearings and Tadawul positions are settled through SARIE (SARIE settles clearing positions from 24 other systems). ### Legal and regulatory framework — coverage and gaps - Existing legislation and instruments: Central Bank Law, Banking Control Law, Securities Market Law, Competition Law, AML/CFT Law, Electronic Transaction Law, Central Bank Regulations having the power of Law, and SAMA operating rules and procedures (e.g., SARIE ORR; SPAN Business Books; Rules for Members of the Automated Clearing System; cheque printing standards). - Covered in current framework: - clarity of timing and finality of settlements; - recognition of electronic processing of transactions; - protection from third party claims for collateral pledged in a payment system; - ensuring fair and competitive practices in provision of payment services; - consumer protection for retail payment services. - Not explicitly covered: - legal recognition of bilateral and multilateral netting arrangements; - non-existence of zero hour and similar rules in case of insolvency. - Recommendation (explicit in source): enact a comprehensive payment system law; the payment system law could also provide a legal basis for Emergency Liquidity Assistance (ELA) operations. - Responsibility and institutional roles: - Banking Control Law provides SAMA mandate to regulate and operate payment systems and to issue policies and regulations. - Powers of SAMA to operate, regulate, and oversee payment systems are stated but not detailed in law; proposed Payment System Law could cover specifics. - CMA empowered to oversee and regulate securities settlement aspects; Tadawul operates Securities Depository Center (SDC). - Non-bank payment service providers need registration and licensing; SAMA licenses clearing houses, payment card processors, Money Transfer Operators (MTOs); SAMA and CMA jointly license/register Non-Bank Financial Institutions; CMA registers and licenses Central Securities Depositories (CSD). ### SARIE (RTGS) — role, operations, and statistics - SARIE is the backbone and the only systemically important payment system in the country; launched in 1997; last software update May 2008. - Functional characteristics and operation: - processes both large-value and small-value payments; supports gross settlement and net settlement; supports both credit transfers and debit transfers. - settlement effected on accounts maintained by the twenty direct participants with SAMA; all settlements in SARIE are deemed final and irrevocable. - membership: single-tier membership structure; membership available only to banks; direct membership only; currently there are twenty direct participants. - messaging and standards: participants linked through a private network provided by Saudi Telecom Company; SAMA-supplied SARIE gateway application used to connect; payment messages conform to SWIFT messaging standards; account numbers conform to IBAN standards; access authenticated using smartcards; digital certificates used to confirm authenticity and integrity. - Liquidity management and support: - supports queuing and prioritization; queued transactions processed FIFO in order of priority; multi-lateral offsetting algorithms available (automatic and manual triggers). - SAMA liquidity support options: use of reserves at SAMA for intraday purposes; request intra-day collateralized overdraft; overnight repos; use riyal proceeds from foreign exchange transactions. - Range of acceptable collateral for collateralized intra-day overdraft: Government development bonds; T-Bills; Special Bonds; Floating rate notes; Farmers certificates. - Overnight repos available at an interest rate of 20 percent per annum and an administrative fee of SR 500. - Any unsettled positions at the end of the day are rejected. - Participants may borrow bilaterally from other participants (transactions confirmed bilaterally outside RTGS and generally uncollateralized); funds transferred among participants through SARIE. - Operations, governance, pricing, and contingency: - SARIE operations governed by SARIE ORR (first published April 1997; four updates; most recent change January 2005); ORR available on restricted SARIE intranet to participants and SAMA. - SARIE pricing determined by SAMA and aims at full recovery of operating costs. - Business Continuity Policy (BCP) with multiple contingency measures and periodic testing; last BCP testing conducted in first quarter of 2010. - BCP aims to recover full functionality within 5-10 minutes of notifying initiation of contingency measures. - Contingency measures include on-site contingency system recovery, switch to systems at contingency site, exchange of data on disks and manual uploads in case of communication failure; primary site has real-time data replication to contingency site located outside Riyadh. - Proposed enhancements: - IPPS proposed moving Automated Clearing House (ACH) type functionalities onto a separate system; - switch to IBAN requirements for accounts has been completed. - SARIE usage and transaction statistics (as reported in the source) - Table 1: SARIE - Transaction Statistics - YEAR 2004 2005 2006 2007 2008 2009 2010 2011 Q1 - SARIE - Value Settled (trillion SR): 8.02 10.15 13.82 33.7 35.91 61.23 55.54 14.27 - SARIE - Volume (million): 15.39 18.43 20.79 24.83 31.64 32.83 35.11 10.61 - `SARIE – Turnover of GDP ( percent): - - 10 23 20 44 34 - - * Source: SAMA - Table 2: SARIE - Values of Transactions (million Riyals) - Year 2004: Customer Payments Bulk 293,601 Single 735,407 Total 1,029,008; Interbank Payments Bulk 86,796 Single 6,899,906 Total 6,986,702; Others 8,325; Total 8,024,035 - Year 2005: Customer Payments Bulk 379,637 Single 1,011,538 Total 1,391,175; Interbank Payments Bulk 116,589 Single 8,629,928 Total 8,746,517; Others 8,450; Total 10,146,142 - Year 2006: Customer Payments Bulk 441,327 Single 1,204,279 Total 1,645,606; Interbank Payments Bulk 107,618 Single 12,077,171 Total 12,184,789; Others 9,563; Total 13,839,959 - Year 2007: Customer Payments Bulk 550,269 Single 1,320,991 Total 1,871,260; Interbank Payments Bulk 72,670 Single 31,730,199 Total 31,802,869; Others 28,720; Total 33,702,849 - Year 2008: Customer Payments Bulk 719,303 Single 2,092,324 Total 2,811,628; Interbank Payments Bulk 79,047 Single 32,979,135 Total 33,058,182; Others 35,946; Total 35,905,756 - Year 2009: Customer Payments Bulk 716,980 Single 2,176,457 Total 2,893,437; Interbank Payments Bulk 42,404 Single 58,280,884 Total 58,323,287; Others 17,440; Total 61,234,165 - Year 2010: Customer Payments Bulk 866,620 Single 2,015,081 Total 2,881,701; Interbank Payments Bulk 36,500 Single 52,541,938 Total 52,578,438; Others 83,860; Total 55,543,999 - Year 2011 Q1: Customer Payments Bulk 277,622 Single 552,042 Total 829,664; Interbank Payments Bulk 9,964 Single 13,384,741 Total 13,394,705; Others 41,516; Total 14,265,885 - Table 3: SARIE - Number of Transactions - Year 2004: Customer Payments Bulk 14,098,532 Single 877,876 Total 14,976,408; Interbank Payments Bulk 22,173 Single 141,572 Total 163,745; Others 253,386; Total 15,393,539 - Year 2005: Customer Payments Bulk 16,799,123 Single 1,146,879 Total 17,946,002; Interbank Payments Bulk 33,075 Single 163,934 Total 197,009; Others 284,878; Total 18,427,889 - Year 2006: Customer Payments Bulk 18,516,565 Single 1,494,688 Total 20,011,253; Interbank Payments Bulk 52,588 Single 195,700 Total 248,288; Others 527,226; Total 20,786,767 - Year 2007: Customer Payments Bulk 21,766,617 Single 1,721,542 Total 23,488,159; Interbank Payments Bulk 61,136 Single 244,912 Total 306,048; Others 1,038,765; Total 24,832,972 - Year 2008: Customer Payments Bulk 27,221,118 Single 2,332,241 Total 29,553,359; Interbank Payments Bulk 63,151 Single 262,510 Total 325,661; Others 1,756,664; Total 31,635,684 - Year 2009: Customer Payments Bulk 27,982,379 Single 2,621,772 Total 30,604,151; Interbank Payments Bulk 77,232 Single 265,862 Total 343,094; Others 1,881,898; Total 32,829,143 - Year 2010: Customer Payments Bulk 30,253,374 Single 3,003,368 Total 33,256,742; Interbank Payments Bulk 74,786 Single 236,820 Total 311,606; Others 1,542,060; Total 35,110,408 - Year 2011 Q1: Customer Payments Bulk 9,376,865 Single 818,313 Total 10,195,178; Interbank Payments Bulk 18,834 Single 61,287 Total 80,121; Others 334,996; Total 10,610,295 - Additional SARIE usage facts: - SARIE handled approximately 3.9 million transactions for a value of over SR 5.2 trillion in March 2011. ### Securities settlement systems (SSS) and market operations - SSS operate safely and efficiently, with some improvements underway. - Corporate securities transactions (except sukuks) are settled on T+0 with the cash leg occurring at the end of the day and the transfer of securities executed immediately after trade confirmation. - Risks are mitigated by caps and controls such as prohibition of short selling. - CMA, Tadawul, and SAMA are advancing plans to move towards intra-day settlement based on delivery-versus-payment (DVP). - Fair and open access to settlement infrastructure by brokers/dealers (particularly those not belonging to a bank) should be discussed in context of this reform. - Government securities and SDC: - SAMA manages clearing and settlement of Government Development Bonds (GDBs), Floating Rate Notes (FRN) and Treasury Bills. - SDC is a single common central securities depository for equities and bonds; around 99.5 percent of negotiable securities in the Kingdom are immobilized and dematerialized in the SDC. - Equities and ETFs: T+0 rolling settlement; real time settlement according to a DVP model 1 arrangement at investor level. - Corporate bonds and SUKUKs: T+2 settlement; DVP model 3 arrangement. - CSD interfaces with SARIE: net settlement positions reconciled within SARIE at 15.30 hours on all trading days and settled in SARIE with finality by 15.40 hours. ### Oversight, governance, and institutional arrangements - SAMA is working to establish its payment system oversight function from an operational perspective. - SAMA’s power to oversee payment systems is stated in central bank and banking laws, but not detailed; proposed Payment System Law could clarify powers to operate, regulate, and oversee. - Recommendations on oversight and governance: - SAMA should clarify its payment system oversight policy in a publicly available document, expanding on scope, actions, and plans to achieve public policy objectives in payment system matters. - Scope of oversight should include all clearing and settlement systems. - SAMA should accelerate creation of a full-fledged oversight unit, independent from payment system operations, and ensure visibility of the oversight function internally and externally. - SAMA and CMA are encouraged to finalize their MOU and include specific reference to areas of joint interaction in the payment and settlement space; structured cooperation could take the form of joint technical working groups of a permanent nature. - Consider establishing an NPS Council/Committee as a consultative and cooperative body. ### Retail payment systems and inclusion efforts - Commercial banks are the sole providers of retail payment products in the kingdom. - Retail payment instruments: cheques, direct debits, credit transfers, credit and debit cards. - Debit cards are the most popular with around 1.56 million transactions on a daily basis; over two thirds of these are for ATM withdrawals. - SAMA and banks are involved in a large-scale effort to foster inclusion by introducing prepaid cards for the 12 million un-banked and under-banked segments. - Payment card and cheque system statistics (as reported) - ATM infrastructure and usage - Total number of ATMs by year: - 2004: 4,104 - 2005: 4,588 - 2006: 6,079 - 2007: 7,543 - 2008: 8,893 - 2009: 9,950 - 2010: 10,885 - Total number of ATMs transactions (thousands) by year: - 2004: 412,193 - 2005: 533,203 - 2006: 626,712 - 2007: 656,491 - 2008: 871,533 - 2009: 941,701 - 2010: 1,074,863 - Total values of cash withdrawals at ATMs (million Riyals) by year: - 2004: 200,422 - 2005: 245,902 - 2006: 279,101 - 2007: 308,734 - 2008: 379,009 - 2009: 411,285 - 2010: 468,390 - POS infrastructure and usage - Total number of Point of Sale (POS) terminals in the country by year: - 2004: 35,521 - 2005: 44,253 - 2006: 57,180 - 2007: 61,557 - 2008: 72,351 - 2009: 82,620 - 2010: 80,505 - Total number of POS transactions (thousands) by year: - 2004: 52,177 - 2005: 66,127 - 2006: 83,132 - 2007: 99,435 - 2008: 120,684 - 2009: 124,830 - 2010: 151,180 - Total values of sales at POS (million Riyals) by year: - 2004: 23,971 - 2005: 28,076 - 2006: 30,966 - 2007: 39,431 - 2008: 51,403 - 2009: 56,256 - 2010: 71,857 - As of March 2011: - 12 million cards issued by commercial banks using SPAN - 80,500 POS terminals part of the SPAN - Cheque clearing houses: volumes and operations - Cheques volume (thousand) by year: - 2004: 7,438 - 2005: 7,578 - 2006: 7,181 - 2007: 7,079 - 2008: 7,330 - 2009: 7,117 - 2010: 7,073 - Cheques value (million SR) by year: - 2004: 486,524 - 2005: 505,210 - 2006: 502,337 - 2007: 596,246 - 2008: 713,328 - 2009: 655,467 - 2010: 724,165 - Clearing house facts: - SAMA operates ten cheque clearing houses, three automated processing over 90 percent by value. - The automated clearing houses are in Riyadh, Jeddah and Damman; these process 90 percent by value and 88 percent by volume of all cheques. - On a daily basis around 23,577 cheques are processed in the cheque clearing houses (slightly lower than 23,725 in the previous year). - The average value of a cheque in 2010 was SR 2,414, a 10 percent rise over SR 2,185 in the previous year. - Clearing cycle and settlement: - One clearing cycle daily from Saturday to Thursday. - Final settlement is done on T+0 in SARIE on a multilateral net basis. - Clearing cycle daily at 12 noon; SARIE effects aggregate net positions at 15 hours Sunday to Wednesday and at 13 hours on Thursdays. - Funds are credited to cheque presenters’ account on a T+3 basis. ### SPAN (POS and ATM switching) - SPAN provides authorization, transaction routing and clearing services for all ATM and POS transactions in the Kingdom; implemented in 1990 and operated by SAMA. - 16 commercial banks connected to SPAN. - SPAN connected to international payment card networks – Visa, Master Card, American Express – and GCC country switches. - Operational and standards facts: - EMV and PCI data security standards applied to SPAN transactions; participant banks required to issue EMV chip cards and comply with PCI standards; POS and ATM devices subject to SPAN certification. - All domestic card transactions mandated to be processed through SPAN. - SPAN clearing schedule: - Clears once a day – 6.30 AM for ATM transactions and 4 AM for POS transactions. - Submits multi-lateral net positions for settlement to SARIE. - SPAN does a combined clearing for Thursday and Friday on Saturday. - International payment card network transactions are settled in SARIE against specific Saudi Riyal accounts held at SAMA. - Fees and cost recovery: - SAMA operates SPAN on a full cost recovery basis; capital investment costs amortized over 3-7 years. - Participants charged on a per transaction basis; no annual membership fees. - Transaction fees tiered; issuers charged for both authorizations and settlement; acquirers charged only for settlement. - There are no interchange fees for POS and ATM transactions processed through SPAN. - The fees are being reviewed in consultation with participants and are likely to drop by over 65 percent. - Operational performance and planned enhancements: - In January 2011, 6.8 percent of the POS transactions and 9.8 percent of the ATM transactions were unsuccessful, with over 10 percent of the failures being due to system errors. - For year 2010, the system uptime was 99.9 percent. - Planned 2011 enhancements: (i) strategic re-pricing to create incentives for issuers of payment cards; (ii) re-branding of the SPAN payment brand; (iii) introduction of prepaid cards to meet needs of the 12 million unbanked; (iv) systems upgrade to bring in real-time monitoring of system performance; and (v) establishment of an internal quality assessment team. - SPAN currently does not process transactions initiated through the internet and mobile phones. ### SADAD (EBPP) - SADAD started operations in 2007; currently around 100 billers and 6 million customers paying bills using SADAD. - SADAD processed around 271,000 bill payment transactions amounting to over SR 199 Million on a daily basis in 2010. - Supported payment types: recurring bills, pre-payment for services, one-off payments. - Membership, rules and fees: - SAMA sets rules, fees and membership criteria for SADAD; membership generally limited to large corporate billers and Government organizations. - Fees charged only to billers; fees set on a per-biller basis and are not set to achieve full cost recovery. - Clearing and settlement: - SADAD payments settled in SARIE. - At Midnight 12 PM cut-off, SADAD prepares a clearing file, computes multi-lateral net settlement positions and transmits to SARIE for settlement in the next settlement cycle. - SADAD does a combined settlement for Thursday and Friday on Saturday. ### Risk, contingency, and operational reliability - SARIE and related systems: - Security measures: digital signatures, encrypted communication lines, smart card access, physical site controls, dual configuration and contingency sites, continuous security reviews and updates. - Real-time replication of data between primary and contingency sites; switch to contingency site achievable in 5-10 minutes. - SARIE BCP last tested in third quarter of 2010; no major disruptions in many years; 2010 saw a communication link failure due to accidental cutting of communication cables. - Cross-system settlement risk observations: - All retail payment systems (cheque clearing, SPAN, SADAD) settle at SARIE; individual systems send final multi-lateral net clearing positions to SARIE, which aggregates and performs consolidated final net settlement. - In the event of a credit problem by a participant, liquidity support mechanisms could be unavailable because they need good quality collateral. - In absence of credit by the SAMA, the only recourse could be to unwind; given cross-system netting, unwinding would be extremely complicated and would raise issues including unwinding order and priority. - Suggested mitigants: study a comprehensive risk management framework combining net-debit limits in individual systems with a consolidated settlement guarantee fund. ### Assessment against CPSIPS and CPSS-IOSCO recommendations - Summary assessment (Table 10 as reported): - Observed 8: CP2, CP3, CP4, CP6, CP7, CP8, CP10, Responsibility B - Broadly observed 5: CP1, CP9, Responsibilities A, C, D - Not applicable 1: CP5 - SDC (Securities Depository Center) self-assessment: - SDC in full compliance with fourteen CPSS-IOSCO recommendations; of remaining five, three are inapplicable (5, 9 and 19), one (16) is broadly observed, and one (17) is partly observed. - CPSS-IOSCO disclosure framework not yet public but will be disclosed following self-assessment. ### Key recommendations and priorities (selected, as stated in source) - Enact a comprehensive payment system law to cover key settlement concepts and provide legal basis for Emergency Liquidity Assistance (ELA) operations. - Clarify and detail SAMA’s powers to operate, regulate, and oversee payment systems in law and in a publicly available oversight policy document. - Accelerate creation of a full-fledged, independent oversight unit within SAMA and ensure its visibility. - Finalize and deepen SAMA–CMA cooperation (MOU) with specific references to joint interaction areas; consider permanent joint technical working groups. - Discuss and ensure fair and open access to settlement infrastructure by brokers/dealers, particularly those not belonging to a bank, in the context of intra-day DVP reform. - Continue the Integrated Payment Systems Strategy (IPSS) implementation, including separation of ACH functionalities and wider rollout of IBAN and inclusion initiatives (prepaid cards for 12 million un-banked/under-banked). - Medium-term operational and risk management improvements: - Consider separation of low and mass payments from large value ones and process the former in an ACH-type system. - Engage participants to verify exposure from settlement of a single netting position for all retail systems. - Study risk management frameworks combining net-debit limits and a consolidated settlement guarantee fund. - For cheque clearing and SPAN: consider upper value limits, pricing to discourage cheques, collateral requirements, guarantee funds, real-time monitoring, and fraud reporting mechanisms. - For SADAD: institute clear unwinding mechanisms; review and publicize membership rules; consider participation of smaller billers and specialized bill aggregators. - For securities systems: consider integration of government securities registry with SARIE to facilitate collateralization and settlement; consider international communication standards if cross-border linkages are contemplated. ### Authorities’ response (selected points) - Authorities acknowledged the high level of standardization reached by the Saudi financial market. - The assessor highlighted that the Banking Control Law (BCL) provides SAMA with a legal framework for payment systems. - The assessor recognized that the level of risk in securities settlement is mitigated by the fact that short-selling is not allowed and stocks are prefunded. - SAMA comments: - No compelling reason to expand the membership of the SARIE system, according to SAMA. - SAMA did not share the assessor’s opinion that the current oversight regulation is not sufficiently detailed; SAMA did not endorse the recommendation that a specific oversight unit should be created. - SAMA stressed that although they are always looking for opportunities for improvement, they believe the current framework to be the most appropriate for the Saudi market. _ Source: _cr13214 - EXECUTIVE SUMMARY (assessment of systemically important payment systems in the Kingdom of Saudi Arabia, FSAP Update mission April 2011)._ ### EXECUTIVE SUMMARY ...................................................................................................... ### EXECUTIVE SUMMARY ### I. SUMMARY, KEY FINDINGS, AND RECOMMENDATIONS - I. SUMMARY, KEY FINDINGS, AND RECOMMENDATIONS ................................................................. 6 - A. General ................................................................................................................................. 6 - B. Information and Methodology Used for Assessment .......................................................... 6 - C. Institutional and Market Structure ....................................................................................... 6 - D. Legal and Regulatory Framework ....................................................................................... 8 - E. The Real Time Gross Settlement System: SARIE ............................................................... 9 - F. Retail Payment Systems and Instruments .......................................................................... 13 - G. Securities Settlement Systems ........................................................................................... 19 - H. Payment and Securities Settlement Systems Oversight ..................................................... 20 ### II. ASSESSMENT OF THE CPS AND CENTRAL BANK RESPONSIBILITIES - II. ASSESSMENT OF THE CPS AND CENTRAL BANK RESPONSIBILITIES ........................................... 23 ### III. AUTHORITIES’ RESPONSE - III. AUTHORITIES’ RESPONSE ......................................................................................................... 44 ### Additional front matter - EXECUTIVE SUMMARY ..................................................................................................................... 4 - GLOSSARY (selected entries listed below) ### Glossary (as provided) - ACH: Automated Clearing House - AML/CFT: Anti-Money Laundering and Combating the Financing of Terrorism - ATM: Automated Teller Machine - BCP: Business Continuity Policy - BCL: Banking Control Law - BTD: Banking Technology Department - CMA: Capital Markets Authority - CML: Capital Market Law - CP: Core Principle - CPSIPS: Core Principles for Systemically Important Payment Systems - CPSS: Committee on Payment and Settlement Systems - DVP: Delivery-versus-Payment - EBPP: Electronic Bill Presentment and Payment - ETF: Exchange-traded fund - FIFO: First-in-First-out - FSAP: Financial Sector Assessment Program - GCC: Gulf Cooperation Council - IPSS: Integrated Payments Strategy System - IOSCO: International Organization of Securities Commissions - MOU: Memorandum of Understanding - NPS: National Payments System - ORR: Operating Rules and Regulations - OTC: Over-the-counter - POS: Point of Sale - RTGS: Real Time Gross Settlement - SAMA: Saudi Arabian Monetary Agency - SARIE: Saudi Arabian Riyal Interbank Express - SDC: Securities Depository Center - SIMAH: Saudi Credit Bureau - SPAN: Saudi Payments Network - SSS: Securities Settlement System *Source: _cr13214 - EXECUTIVE SUMMARY ......................................................................................................* ### EXECUTIVE SUMMARY ### _cr13214 - EXECUTIVE SUMMARY ### Overview and purpose - Assessment of the systemically important payment systems in the Kingdom of Saudi Arabia (KSA) based on the CPSS Core Principles for Systemically Important Payment Systems (CPSIPS). - Conducted in the context of the Financial Sector Assessment Program (FSAP) Update to the KSA (April 2011). - Assessor of the CPSIPS: Massimo Cirasino. - The national payments system (NPS) efficiently serves a broad set of users; infrastructure primarily concentrated on payments in riyals and characterized by a high level of standardization. ### NPS infrastructure components - Systems and services operated or provided by SAMA and related entities: - Saudi Arabian Riyal Interbank Express (SARIE) real time gross settlement (RTGS) system: processes a wide range of large-value and small-value payments; provides settlement facilities for clearing systems and for transactions executed at Tadawul stock exchange. - Check clearing houses operated at SAMA branches. - Automated teller machine (ATM) and point-of-sale services provided through Saudi Payments Network (SPAN). - Electronic bill presentment and payment processed by SADAD (national electronic bill presentment and payment service). - Public Key Infrastructure (PKI) providing advanced security facilities. - SAMA Joint Network (SJN): highly secured communications network. - SPAN, SADAD, check clearings and Tadawul positions are settled through SARIE (SARIE settles clearing positions from 24 other systems). ### Legal and regulatory framework — coverage and gaps - Existing legislation and instruments: Central Bank Law, Banking Control Law, Securities Market Law, Competition Law, AML/CFT Law, Electronic Transaction Law, Central Bank Regulations having the power of Law, and SAMA operating rules and procedures (e.g., SARIE ORR; SPAN Business Books; Rules for Members of the Automated Clearing System; cheque printing standards). - Covered in current framework: - clarity of timing and finality of settlements; - recognition of electronic processing of transactions; - protection from third party claims for collateral pledged in a payment system; - ensuring fair and competitive practices in provision of payment services; - consumer protection for retail payment services. - Not explicitly covered: - legal recognition of bilateral and multilateral netting arrangements; - non-existence of zero hour and similar rules in case of insolvency. - Recommendation (explicit in source): enact a comprehensive payment system law; the payment system law could also provide a legal basis for Emergency Liquidity Assistance (ELA) operations. - Responsibility and institutional roles: - Banking Control Law provides SAMA mandate to regulate and operate payment systems and to issue policies and regulations. - Powers of SAMA to operate, regulate, and oversee payment systems are stated but not detailed in law; proposed Payment System Law could cover specifics. - CMA empowered to oversee and regulate securities settlement aspects; Tadawul operates Securities Depository Center (SDC). - Non-bank payment service providers need registration and licensing; SAMA licenses clearing houses, payment card processors, Money Transfer Operators (MTOs); SAMA and CMA jointly license/register Non-Bank Financial Institutions; CMA registers and licenses Central Securities Depositories (CSD). ### SARIE (RTGS) — role, operations, and statistics - SARIE is the backbone and the only systemically important payment system in the country; launched in 1997; last software update May 2008. - Functional characteristics: - processes both large-value and small-value payments; - supports gross settlement and net settlement; - supports both credit transfers and debit transfers; - settlement effected on accounts maintained by the twenty direct participants with SAMA; - all settlements in SARIE are deemed final and irrevocable. - Observance of CPSIPS: SARIE fully observes all Core Principles except CP 1 (Legal) and CP 9 (Access), which are broadly observed. - Membership and access: - single-tier membership structure; membership available only to banks; direct membership only; currently there are twenty direct participants. - Messaging, security, and standards: - participants linked through a private network provided by Saudi Telecom Company; - SAMA-supplied SARIE gateway application used to connect; - payment messages conform to SWIFT messaging standards; account numbers conform to IBAN standards; - access authenticated using smartcards; digital certificates used to confirm authenticity and integrity. - Liquidity management and support: - SARIE supports queuing and prioritization; queued transactions processed FIFO in order of priority; multi-lateral offsetting algorithms available (automatic and manual triggers). - SAMA liquidity support options: use of reserves at SAMA for intraday purposes; request intra-day collateralized overdraft; overnight repos; use riyal proceeds from foreign exchange transactions. - Range of acceptable collateral for collateralized intra-day overdraft: Government development bonds; T-Bills; Special Bonds; Floating rate notes; Farmers certificates. - Overnight repos available at an interest rate of 20 percent per annum and an administrative fee of SR 500. - Any unsettled positions at the end of the day are rejected. - Participants may borrow bilaterally from other participants (transactions confirmed bilaterally outside RTGS and generally uncollateralized); funds transferred among participants through SARIE. - Operations, governance, pricing, and contingency: - SARIE operations governed by SARIE ORR (first published April 1997; four updates; most recent change January 2005); ORR available on restricted SARIE intranet to participants and SAMA. - SARIE pricing determined by SAMA and aims at full recovery of operating costs. - Business Continuity Policy (BCP) with multiple contingency measures and periodic testing; last BCP testing conducted in first quarter of 2010. - BCP aims to recover full functionality within 5-10 minutes of notifying initiation of contingency measures. - Contingency measures include on-site contingency system recovery, switch to systems at contingency site, exchange of data on disks and manual uploads in case of communication failure; primary site has real-time data replication to contingency site located outside Riyadh. - Proposed enhancements: - IPPS proposed moving Automated Clearing House (ACH) type functionalities onto a separate system; - switch to IBAN requirements for accounts has been completed. - SARIE usage and transaction statistics (preserve all numeric values as reported): - Table 1: SARIE - Transaction Statistics - YEAR 2004 2005 2006 2007 2008 2009 2010 2011 Q1 - SARIE - Value Settled (trillion SR): 8.02 10.15 13.82 33.7 35.91 61.23 55.54 14.27 - SARIE - Volume (million): 15.39 18.43 20.79 24.83 31.64 32.83 35.11 10.61 - `SARIE – Turnover of GDP ( percent): - - 10 23 20 44 34 - - * Source: SAMA - Table 2: SARIE - Values of Transactions (million Riyals) - Year 2004: Customer Payments Bulk 293,601 Single 735,407 Total 1,029,008; Interbank Payments Bulk 86,796 Single 6,899,906 Total 6,986,702; Others 8,325; Total 8,024,035 - Year 2005: Customer Payments Bulk 379,637 Single 1,011,538 Total 1,391,175; Interbank Payments Bulk 116,589 Single 8,629,928 Total 8,746,517; Others 8,450; Total 10,146,142 - Year 2006: Customer Payments Bulk 441,327 Single 1,204,279 Total 1,645,606; Interbank Payments Bulk 107,618 Single 12,077,171 Total 12,184,789; Others 9,563; Total 13,839,959 - Year 2007: Customer Payments Bulk 550,269 Single 1,320,991 Total 1,871,260; Interbank Payments Bulk 72,670 Single 31,730,199 Total 31,802,869; Others 28,720; Total 33,702,849 - Year 2008: Customer Payments Bulk 719,303 Single 2,092,324 Total 2,811,628; Interbank Payments Bulk 79,047 Single 32,979,135 Total 33,058,182; Others 35,946; Total 35,905,756 - Year 2009: Customer Payments Bulk 716,980 Single 2,176,457 Total 2,893,437; Interbank Payments Bulk 42,404 Single 58,280,884 Total 58,323,287; Others 17,440; Total 61,234,165 - Year 2010: Customer Payments Bulk 866,620 Single 2,015,081 Total 2,881,701; Interbank Payments Bulk 36,500 Single 52,541,938 Total 52,578,438; Others 83,860; Total 55,543,999 - Year 2011 Q1: Customer Payments Bulk 277,622 Single 552,042 Total 829,664; Interbank Payments Bulk 9,964 Single 13,384,741 Total 13,394,705; Others 41,516; Total 14,265,885 - Table 3: SARIE - Number of Transactions - Year 2004: Customer Payments Bulk 14,098,532 Single 877,876 Total 14,976,408; Interbank Payments Bulk 22,173 Single 141,572 Total 163,745; Others 253,386; Total 15,393,539 - Year 2005: Customer Payments Bulk 16,799,123 Single 1,146,879 Total 17,946,002; Interbank Payments Bulk 33,075 Single 163,934 Total 197,009; Others 284,878; Total 18,427,889 - Year 2006: Customer Payments Bulk 18,516,565 Single 1,494,688 Total 20,011,253; Interbank Payments Bulk 52,588 Single 195,700 Total 248,288; Others 527,226; Total 20,786,767 - Year 2007: Customer Payments Bulk 21,766,617 Single 1,721,542 Total 23,488,159; Interbank Payments Bulk 61,136 Single 244,912 Total 306,048; Others 1,038,765; Total 24,832,972 - Year 2008: Customer Payments Bulk 27,221,118 Single 2,332,241 Total 29,553,359; Interbank Payments Bulk 63,151 Single 262,510 Total 325,661; Others 1,756,664; Total 31,635,684 - Year 2009: Customer Payments Bulk 27,982,379 Single 2,621,772 Total 30,604,151; Interbank Payments Bulk 77,232 Single 265,862 Total 343,094; Others 1,881,898; Total 32,829,143 - Year 2010: Customer Payments Bulk 30,253,374 Single 3,003,368 Total 33,256,742; Interbank Payments Bulk 74,786 Single 236,820 Total 311,606; Others 1,542,060; Total 35,110,408 - Year 2011 Q1: Customer Payments Bulk 9,376,865 Single 818,313 Total 10,195,178; Interbank Payments Bulk 18,834 Single 61,287 Total 80,121; Others 334,996; Total 10,610,295 ### Securities settlement systems (SSS) and market operations - SSS operate safely and efficiently, with some improvements underway. - Corporate securities transactions (except sukuks) are settled on T+0 with the cash leg occurring at the end of the day and the transfer of securities executed immediately after trade confirmation. - Risks are mitigated by caps and controls such as prohibition of short selling. - CMA, Tadawul, and SAMA are advancing plans to move towards intra-day settlement based on delivery-versus-payment (DVP). - Fair and open access to settlement infrastructure by brokers/dealers (particularly those not belonging to a bank) should be discussed in context of this reform. ### Oversight, governance, and institutional arrangements - SAMA is working to establish its payment system oversight function from an operational perspective. - SAMA’s power to oversee payment systems is stated in central bank and banking laws, but not detailed; proposed Payment System Law could clarify powers to operate, regulate, and oversee. - Recommendation: SAMA should clarify its payment system oversight policy in a publicly available document, expanding on scope, actions, and plans to achieve public policy objectives in payment system matters. - Recommendation: scope of oversight should include all clearing and settlement systems. - Recommendation: SAMA should accelerate creation of a full-fledged oversight unit, independent from payment system operations, and ensure visibility of the oversight function internally and externally. - Recommendation: SAMA and CMA are encouraged to finalize their MOU and include specific reference to areas of joint interaction in the payment and settlement space; structured cooperation could take the form of joint technical working groups of a permanent nature. ### Retail payment systems and inclusion efforts - Commercial banks are the sole providers of retail payment products in the kingdom. - Retail payment instruments: cheques, direct debits, credit transfers, credit and debit cards. - Debit cards are the most popular with around 1.56 million transactions on a daily basis; over two thirds of these are for ATM withdrawals. - SAMA and banks are involved in a large-scale effort to foster inclusion by introducing prepaid cards for the 12 million un-banked and under-banked segments. - Payment card transaction statistics and cheque system statistics are provided in the source (tables referenced). ### Key recommendations and priorities (as stated in source) - Enact a comprehensive payment system law to cover key settlement concepts and provide legal basis for Emergency Liquidity Assistance (ELA) operations. - Clarify and detail SAMA’s powers to operate, regulate, and oversee payment systems in law and in a publicly available oversight policy document. - Accelerate creation of a full-fledged, independent oversight unit within SAMA and ensure its visibility. - Finalize and deepen SAMA–CMA cooperation (MOU) with specific references to joint interaction areas; consider permanent joint technical working groups. - Discuss and ensure fair and open access to settlement infrastructure by brokers/dealers, particularly those not belonging to a bank, in the context of intra-day DVP reform. - Continue the Integrated Payment Systems Strategy (IPSS) implementation, including separation of ACH functionalities and wider rollout of IBAN and inclusion initiatives (prepaid cards for 12 million un-banked/under-banked). *Source: EXECUTIVE SUMMARY (assessment of systemically important payment systems in the Kingdom of Saudi Arabia, FSAP Update mission April 2011).* ### 3. The SAMA is the operator of the major retail payment systems—the clearing house, the card ### 3. The SAMA is the operator of the major retail payment systems—the clearing house, the card payments switch, and EBPP systems. ### Payment card infrastructure and usage - Total number of Automated Teller Machines (ATMs) by year: - 2004: 4,104 - 2005: 4,588 - 2006: 6,079 - 2007: 7,543 - 2008: 8,893 - 2009: 9,950 - 2010: 10,885 - Total number of ATMs transactions (thousands) by year: - 2004: 412,193 - 2005: 533,203 - 2006: 626,712 - 2007: 656,491 - 2008: 871,533 - 2009: 941,701 - 2010: 1,074,863 - Total values of cash withdrawals at ATMs (million Riyals) by year: - 2004: 200,422 - 2005: 245,902 - 2006: 279,101 - 2007: 308,734 - 2008: 379,009 - 2009: 411,285 - 2010: 468,390 - Total number of Point of Sale (POS) terminals in the country by year: - 2004: 35,521 - 2005: 44,253 - 2006: 57,180 - 2007: 61,557 - 2008: 72,351 - 2009: 82,620 - 2010: 80,505 - Total number of POS transactions (thousands) by year: - 2004: 52,177 - 2005: 66,127 - 2006: 83,132 - 2007: 99,435 - 2008: 120,684 - 2009: 124,830 - 2010: 151,180 - Total values of sales at POS (million Riyals) by year: - 2004: 23,971 - 2005: 28,076 - 2006: 30,966 - 2007: 39,431 - 2008: 51,403 - 2009: 56,256 - 2010: 71,857 - As of March 2011: - 12 million cards issued by commercial banks using SPAN - 80,500 POS terminals part of the SPAN ### Cheque clearing houses: structure, volumes and operations - Cheques volume (thousand) by year: - 2004: 7,438 - 2005: 7,578 - 2006: 7,181 - 2007: 7,079 - 2008: 7,330 - 2009: 7,117 - 2010: 7,073 - Cheques value (million SR) by year: - 2004: 486,524 - 2005: 505,210 - 2006: 502,337 - 2007: 596,246 - 2008: 713,328 - 2009: 655,467 - 2010: 724,165 - Clearing house facts: - The SAMA operates ten cheque clearing houses, three of which are automated and process over 90 percent by value. - The automated clearing houses are in Riyadh, Jeddah and Damman; these process 90 percent by value and 88 percent by volume of all cheques. - SAMA and twenty commercial banks are members of the cheque clearing houses. - Even in the three ACHs the physical exchange of cheques is still required. - On a daily basis around 23,577 cheques are processed in the cheque clearing houses (slightly lower than 23,725 in the previous year). - The average value of a cheque in 2010 was SR 2,414, a 10 percent rise over SR 2,185 in the previous year. - Clearing cycle and settlement: - One clearing cycle daily from Saturday to Thursday. - Final settlement is done on T+0 in SARIE on a multilateral net basis. - Clearing cycle daily at 12 noon; multi-lateral net settlement positions communicated individually from each of the ten clearing houses to SARIE. - SARIE effects aggregate net positions at 15 hours Sunday to Wednesday and at 13 hours on Thursdays. - Funds are credited to cheque presenters’ account on a T+3 basis. - If a participant is unable to settle, transactions would be unwound and the participant would be liable to other members to be settled bilaterally (this situation has never happened). - Business continuity and standards: - No clear Business Continuity Plan (BCP) documented for clearing houses, though multiple continuity measures exist (onsite contingency systems in ACHs; manual input of settlement positions if connectivity issues). - ACHs can stand in for each other; manual clearing houses can be conducted at other clearing houses. - Measures are not documented in a clear BCP and are not tested periodically. - Information on bounced cheques is included in SIMAH (credit information database); SAMA regulates SIMAH established in 2008. ### POS and ATM switching — SPAN - SPAN facts and connectivity: - SAMA operates the national payment card switch SPAN, implemented in 1990. - SPAN provides authorization, transaction routing and clearing services for all ATM and POS transactions in the Kingdom. - 16 commercial banks connected to SPAN. - SPAN connected to international payment card networks – Visa, Master Card, American Express – and GCC country switches. - Clearing, settlement and operational rules: - SPAN operates a Claims Processing System (CPS) for inter-bank disputes; rules set by SAMA. - SAMA adopted international standards: EMV and PCI data security standards applied to SPAN transactions. - Participant banks are required to issue EMV chip cards; comply with PCI data security standards; all POS and ATM devices subject to SPAN certification. - All domestic card transactions mandated to be processed through SPAN. - SPAN clearing schedule: - Clears once a day – 6.30 AM for ATM transactions and 4 AM for POS transactions. - Submits multi-lateral net positions for settlement to SARIE. - SPAN does a combined clearing for Thursday and Friday on Saturday. - International payment card network transactions are settled in SARIE against specific Saudi Riyal accounts held at SAMA. - Transactions pertaining to GCC country switches are settled in nostro accounts held with SAMA and the vostro accounts held by SAMA with other GCC central banks. - Fees and cost recovery: - SAMA operates SPAN on a full cost recovery basis. - Capital investment costs amortized over 3-7 years depending on asset classification. - Participants charged on a per transaction basis; no annual membership fees. - Transaction fees are tiered; charged for each authorization and settlement. - Issuers charged for both authorizations and settlement; acquirers charged only for settlement. - Fees differ for ATM and POS transactions; lower range for POS being lower, and higher range being higher than ATM transactions. - The fees are being reviewed in consultation with participants and are likely to drop by over 65 percent. - There are no interchange fees for POS and ATM transactions processed through SPAN. ### Bill presentment and payment — SADAD (EBPP) - SADAD implementation and coverage: - SAMA operates the EBPP system SADAD. - SADAD started operations in 2007; implemented around a solution provided by CheckFree. - Currently around 100 billers and 6 million customers paying bills using SADAD. - SADAD processed around 271,000 bill payment transactions amounting to over SR 199 Million on a daily basis in 2010. - Supported payment types: - Bills for recurring services (e.g., utilities). - Pre-payment for services (e.g., mobile phone re-charge). - One-off payments (e.g., airline ticketing, purchasing vouchers). - Membership, rules and fees: - SAMA sets rules, fees and membership criteria for SADAD. - SADAD does not publish membership rules; generally only large corporate billers and Government organizations are accepted. - Plan underway to expand services to smaller billers and merchants. - Operating rules provided to participants at joining. - Fees charged only to billers; billers are encouraged not to pass on fees to customers. - Fees set on a per-biller basis based on nature of industry, projected 5 year volume, average value of each bill and projected penetration. - Fees are not set to achieve full cost recovery. - Clearing and settlement: - SADAD payments settled in SARIE. - Billers maintain accounts with commercial banks participating in SARIE. - At Midnight 12 PM cut-off, SADAD prepares a clearing file, computes multi-lateral net settlement positions and transmits to SARIE for settlement in the next settlement cycle. - SARIE aggregates SADAD positions with other retail systems and executes aggregate multi-lateral net settlement. - SADAD does a combined settlement for Thursday and Friday on Saturday. ### Securities settlement systems and market structure - Government securities: - SAMA manages clearing and settlement of Government Development Bonds (GDBs), Floating Rate Notes (FRN) and Treasury Bills. - SAMA operates a registry with securities accounts for banks investing in Government securities. - Currently only banks and government agencies (mainly Pensions Funds) can participate in T-Bill auctions. - Auctions for banks are based on competitive bidding. - Ownership is registered at the level of the intermediary and not the beneficial owner. - Primary market transactions are settled in SARIE on Wednesdays (T+2). - Secondary market transactions among banks executed by sending instructions via SARIE; funds moved in SARIE and securities in the registry. - Central Securities Depository (SDC) and corporate securities: - Single common central securities depository (Securities Depository Center, SDC) for equities and bonds. - Around 99.5 percent of negotiable securities in the Kingdom are immobilized and dematerialized in the SDC. - Direct participants: commercial banks, broker-dealers and other financial institutions (97 market participants of which 65 provide services as a dealer). - Beneficial owners are identified at the individual level in the CSD (a department of Tadawul). - Settlement cycles and DVP arrangements: - Equities and ETFs: T+0 rolling settlement cycle; real time settlement according to a DVP model 1 arrangement at the level of investors. - Corporate bonds and SUKUKs: T+2 settlement cycle; DVP model 3 arrangement (securities and funds legs settled on a net basis at end of settlement cycle). - Trades executed only where seller has securities in its SDC account and relevant Clearing Bank guarantees payment. - CSD interfaces with SARIE: net settlement positions reconciled within SARIE at 15.30 hours on all trading days and settled in SARIE with finality by 15.40 hours. - Individual investors required to make securities and funds available prior to executing transactions. - OTC derivatives: - OTC derivatives market is nascent. - Banks deal primarily in plain vanilla derivative products for risk management (hedging FX or interest rate risks). - FX swap products are the major OTC derivatives used by banks. - Size of overall OTC derivatives market is nominal; activities monitored by SAMA through periodic reporting. ### Payment and securities oversight; strategic review - Payment systems oversight: - SAMA is establishing a fully-fledged payment systems oversight function. - Oversight has de facto been performed by SAMA BTD; BTD is staffing an oversight unit operationally independent from operating units. - SAMA has not set down its oversight policy and objectives in a policy document. - SAMA classifies payment systems as: - 1) Systemically Important Payment Systems (SIPS) - 2) Retail Systems of Systemic Importance (RSSI) - 3) Retail Systems of Prominent Importance (RSPI) - 4) Other Retail Payment Systems - Oversight tools used: monitoring, dialogue and moral suasion, on-site inspections; less often used: issuance of regulations, sanctions, production and publication of statistics and analysis. - 2009 Strategic review and Integrated Payments System Strategy (IPSS): - Objectives guiding the review included: - Reduce reliance on paper-based instruments by providing convenient and trusted non-cash instruments. - Improve efficiency and automation in B2B payments initiation & reconciliation and electronic invoice presentment and payment (EIPP). - Test opportunities for SAMA BTD to act as payments market catalyst and expand shared service utility provision. - Provide pragmatic architecture appropriate for the future and implementable over next 5 years. - Enable SAMA and banks to provide payment services commercially sustainably and invest in new services. - High level summary of proposed strategy: 1. Strengthen the SARIE system to handle projected volumes, advance integration with GCC RTGS systems, and re-position SARIE as a true RTGS by shifting low-value retail transactions to a separate ACH-type system. 2. Design, develop and implement a basic prepaid account/card (TAYF) for the un-banked and several other customer segments (e.g. children, government offices, domestic employees, gas station private label cards etc.) 3. Develop and implement a “merchant acquiring strategy” focusing on end-to-end governance over the card experience and addressing SPAN processing problems. 4. Design, develop and implement mobile payments (M-Payments) respecting current roles of SAMA, banks and Telco operators. 5. Provide advanced payment services to corporate customers through enabling B2B billing in SADAD and developing EIPP products on ACH platform. *Source: SAMA (as provided in the content unit).* ### 6. Plan for the development of a new messaging service (CorpLink) to enable Corporates communicate ### 6. Plan for the development of a new messaging service (CorpLink) to enable Corporates communicate with their banks in SWIFT message formats in a more secure and confidential manner than through SWIFT. ### Strategy implementation and governance - The SAMA is currently developing a plan for implementing this strategy by 2020. - The CMA has jurisdiction over corporate securities settlement systems under the Capital Markets Law; it conducts regular inspection of the CSD and engages in ongoing dialogue with Tadawul and market players. - Cooperation in the payment space exists but is not formalized: - The SAMA and the CMA currently engage in dialogue with each other and other regulators, but there are no formal Memorandum of Understanding (MOU) in place. - The SAMA consults and co-operates with payment system stakeholders on specific operational matters and holds regular senior-level meetings to discuss strategic issues. - No National Payments System Council/Committee exists. ### SARIE: systemically important payment system — key statistics and role - SARIE is the backbone of the NPS in Saudi Arabia. - SARIE handled approximately 3.9 million transactions for a value of over SR 5.2 trillion in March 2011. - SARIE is assessed against the ten CPSS Core Principles for SIPS (CPSIPS) and the four Responsibilities of central banks; assessment categories: observed, broadly observed, partly observed, non-observed, not applicable. ### Legal and regulatory framework (CP I) - Description: - A relatively complete legal framework is in place, including: - the Central Bank Law - the Banking Law - the Securities Market Law - Competition Law - AML/CFT Law - Electronic Transaction Law - Central Bank Regulations having the power of Law - SAMA-issued operating rules and procedures include: - Saudi Arabian Riyal Inter-bank Express (SARIE) System Operating Rules & Regulations (ORR) - “SPAN Business Books” - “Rules for Members of the Automated Clearing System” - “Cheque printing standards” for cheque clearing houses - Many critical aspects are covered (timing and finality of settlements; recognition of electronic processing; protection from third party claims for collateral; fair and competitive practices; consumer protection for retail payments). - Not covered explicitly: (i) legal recognition of bilateral and multilateral netting arrangements; (ii) non-existence of zero hour and similar rules in case of insolvency. - SAMA’s power to oversee payment systems is stated in central bank and banking laws but powers to operate, regulate, and oversee payment systems are not detailed in law. - Assessment: Broadly Observed - Comments: Lack of a specific payment system law excluding explicit conflicts can give rise to some uncertainty on the legal framework for settlement. ### Rules transparency (CP II) - Description: - SARIE ORR contains clear, comprehensive and up-to-date rules and procedures (system design, timetable, definitions of credit, liquidity, legal, operational, systemic risks and safeguards). - Participants access rules via a restricted intranet website. - ORR provisions include: - ownership and operation of the system - admission and expulsion of participants - certification of participants by the SAMA - definition of each payment type and its usage - responsibilities of all parties using SARIE - use of system functions by participants - types of system functions reserved for SAMA - direct debit scheme rules governing banks, payers and originators - Assessment: Observed - Comments: none ### Risk management (CP III) - Description: - Intraday limits on exposure to any participant; all limits fully collateralized. - SAMA-issued Limit and Collateral Policy sets intraday overdraft rules and acceptable collateral. - Intraday overdraft limit must be fully collateralized by Saudi Arabian government-issued instruments; a haircut, currently at 10 percent of the value of the collateral, is applied. - Allowable collateral instruments listed: - Government Development Bonds - Treasury bills - special bonds - floating rate notes - farmers’ certificates - SAMA holds a Letter of Undertaking signed by each bank pledging specified instruments as collateral. - Participant account balance must never be less than zero plus any intraday debit limit approved by SAMA; intraday debit balances must be discharged by end of day to zero or credit. - Overnight Repo facility from SAMA: up to 75 percent of available collateral, discretional, commission charged at the rate of 20 percent per annum, plus a SR 500 administrative charge. - Government securities are registered at the SAMA; repos/reverse repos and currency swaps managed by the Investment Department. - Repos can be activated during the operating day but earmarked collateral is not available for use in repo. - Interbank market exists (typically bilateral uncollateralized loans) but is not used actively due to abundant liquidity. - Liquidity optimization features: queuing, prioritization, offsetting; queued transactions processed FIFO by priority; multi-lateral offsetting algorithms auto-triggered or manual. - Payments queued more than half an hour currently are charged at a penalty rate. - Assessment: Observed - Comments: Financial risks properly managed; medium-term improvements could include less discretionary rules and a more straightforward link between funds accounts and securities accounts to activate intraday liquidity facilities more automatically. ### Finality of settlement (CP IV) - Description: - SARIE is a Real Time Gross Settlement System; same-day value payments processed in real time and normally settled within seconds when funds are available. - Forward value payments (can be sent up to 14 days before the value date) are stored until the value date and settled at start-of-day on the value date, subject to liquidity. - SARIE ORR requires payment transactions to be final and irrevocable upon settlement. Settlement confirmation is sent to the payee only after affirming and debiting the payer’s account. - Payments pending in a queue at end of operating day are rejected. - Assessment: Observed - Comments: none ### Multilateral netting (CP V) - Description: SARIE is an RTGS. - Assessment: Not Applicable - Comments: none ### Settlement assets (CP VI) - Description: Settlement in SARIE occurs in central bank money at the SAMA; participant accounts on SARIE are binding on SAMA and the participant in the absence of manifest error. - Assessment: Observed - Comments: none ### Security, operational reliability and contingency (CP VII) - Description: - Security measures: digital signatures for message origin, encrypted communication lines, smart card access, physical site controls, full dual configuration and contingency sites, continuous security reviews and updates. - Contingency arrangements in place and regularly tested to facilitate timely completion of daily processing. - System designed to cope with a single point of failure; hardware and software safeguards; switch to contingency site achievable in a very short period of time — say within 5-10 minutes. - Primary and contingency locations provisioned with primary system, secondary system (standby), shared database with mirrored discs using real-time mirroring, periodic backups and offline file transfer in case of total communication failure. - Real-time replication of data between Primary and Contingency site databases; same configuration applies in Gateway sites (at Participants). - Some banks maintain private Contingency sites; others use shared Contingency sites provided by SAMA. - The SAMA has a documented Business Continuity Plan (BCP); SARIE was last tested in third quarter of 2010. - No major disruptions in many years of operations; in 2010 a communication link failure due to accidental cutting of communication cables occurred. - All SAMA systems are periodically audited by external and internal auditors. - Assessment: Observed - Comments: - SAMA is working to streamline contingency procedures across different payment and settlement systems to achieve higher efficiency. - SAMA is encouraged to continuously assess whether the many clearing systems that settle in SARIE introduce relevant operational risk. ### Practicality and efficiency for users (CP VIII) - Description: - SARIE is a fully integrated RTGS permitting all Saudi banks to make immediate interbank transfers through SAMA-held accounts. - System features a quasi 24-hour availability to send payment instructions and ensures payment finality and irrevocability. - Real-time, direct access to SAMA accounts enables banks to continuously monitor financial positions. - SARIE Business Day hours: - Saturday to Wednesday 09:00 to 16:00. - Thursday 09:30 to 13:30. - Friday is non-business day. - National holidays are non-business days in SARIE. - Forward value payments (up to 14 days from send date) and maturing direct debits are settled at the start of the daily business cycle. - Same day value payments irrevocably settled in real time provided sufficient liquidity; payments queued until sufficient liquidity; if insufficient by close of business, SAMA may cancel queued payments. - Other payment and securities settlement systems that rely on SARIE for settlement purposes total 24 separate clearings, including: - SADAD - SPAN ATM & POS - Cheque Clearings - TADAWUL - Settlement of Saudi positions arising from international card systems AMEX, VISA and MasterCard - Other card settlement systems in and between Saudi and other GCC countries - Government securities trading channeled through SARIE; cash leg settled in RTGS. - SARIE integrates clearing and settlement positions of ATM, EFTPOS, cheque clearings into a single interbank settlement position settled through banks’ accounts at SAMA. - SARIE is linked to SAMA MIS accounting system to receive start-of-day settlement account balances and to send end-of-day balances for updating SAMA’s general ledger. - Fee rates are set out in the SARIE Charging Policy which was last updated in July - (source text stops here; no further date or amount provided) - Assessment: Observed - Comments: none *Source: _cr13214 - 6. Plan for the development of a new messaging service (CorpLink) to enable Corporates communicate with their banks in SWIFT message formats in a more secure and confidential manner than through SWIFT.* ### 2006. Fees are divided into: ### _cr13214 - 2006. Fees are divided into: ### Fees and charging policy - Fees are divided into: - Transaction fees - Minimum monthly fees - New or Amalgamated Participant fees - Withdrawal of a Participant - Clearing settlement fees - Service fees (covering the other SARIE support services provided by the SAMA) - Exceptional and penalty fees aimed at encouraging good behavior - The maximum fee that Participants may charge to customers is set out in the SARIE Charging Policy. - Fees charged for forward value payments are lower than those for same day value. - No throughput mechanisms: there are no different prices charged based on time of the day. ### Processing times, operating hours, and service quality - Normal time taken to process a transaction from end to end: - Real time for same day value Customer and Bank-to-Bank payments. - Two days for Direct Debits from date of sending to final settlement. - Receiving banks must credit funds to the Beneficiary as soon as possible after receipt of settled payments and not later than the end of the business day with some small exceptions as set out in the SARIE ORR. - Operating hours and the daily business cycle were amended in 2006 in cooperation with system participants. - It is likely that operating hours might need to be extended and the calendar for settlement of other systems in SARIE be reconsidered in light of technological and business development. - The SAMA is engaged in discussions with commercial banks on this topic. - Banks interviewed expressed a high level of satisfaction with SARIE services; occasional minor problems caused by data communication delays are being addressed by the SAMA. ### System features and upgrades - SARIE system upgraded to add the feature of IBAN account format which provides the facility for Sending banks (and Remitters) to perform validation check on Beneficiary account number. - IBAN has significantly improved the accuracy of account numbers being received in inward payments. ### Participation policy and access (CP IX) - Description: - The SARIE ORR state that all participants must be commercial banks, must have systems, procedures and trained staff satisfactory to the SAMA for participation in SARIE and must be certified by the SAMA in accordance with the ORR. - There is no requirement in relation to a minimum number of transactions; the SAMA must approve all participants. - New participants are charged a once-off fee on joining the SARIE system as specified in the SARIE Charging Policy. - The commercial banks operating in the Kingdom are the Participants. The SAMA also acts as a Participant. - The SAMA may admit additional Participants if, in the opinion of the SAMA, they meet qualifying criteria defined by the SAMA from time to time. - There is no indirect participation in the system. - Clear rules for exit or exclusion of a participant exist. - The rules are available on the dedicated SARIE intranet where access is restricted to Participants and the SAMA; the rules are also available from the SAMA in hardcopy. - Assessment: Broadly Observed - Comments: - Only banks are allowed to participate; this policy does not seem to be based on a recent analysis of the risk associated with participation. - Acceptance of new participants is discretionary by the SAMA and not based on disclosed objective criteria. - The assessor did not find written documentation of the original access policy review. ### Governance, pricing, penalties and oversight (CP X) - Description: - SARIE is fully owned, operated and overseen by the SAMA. - SARIE operations are managed within the Banking Technology Department of the SAMA by a dedicated team with operational interactions with other relevant SAMA departments. - A formal users’ group provides regular feedback; any changes to the system are discussed with participants before implementation. - SARIE pricing policy is determined by the SAMA, aims at full recovery of operating costs and is deemed fair by system participants. - Penalties and sanctions (as set out): - Cut-off Delay: SR 12,000; - Late payment of SARIE fee invoice: SR 1,000; - Late Squaring: SR 1,000; - Contingency test failure: SR 15,000; - Incorrect payment entry: SR 1,500; - Manual input by the SAMA: SR 15,000; - Out of SARIE (Live): SR 20,000; - Out of SARIE (Test): SR 3,000; - Restart of database engine during business hours without permission: SR 20,000 - Losing SARIE application tape: SR 5,000. - Additional charge noted: - Fees for the SAMA Technical Support were charged for a total of SAR314,000. - Assessment: Observed - Comments: - The SAMA is continuously working to streamline operations and has divided operations from oversight. - The system fully observes almost all the CPSIPS. ### Retail systems, securities systems, and settlement risk considerations - All retail payment systems (cheque clearing, SPAN, SADAD) settle at the SARIE system. Individual systems send final multi-lateral net clearing positions to SARIE, which aggregates and performs a consolidated final net settlement. - Key risk and operational observations: - In the event of a credit problem by a participant, liquidity support mechanisms could be unavailable because they need good quality collateral. - In absence of credit by the SAMA, the only recourse could be to unwind; given cross-system netting, unwinding would be extremely complicated and would raise issues including unwinding order and priority. - A comprehensive risk management framework (e.g., combination of net-debit limits in individual systems with a consolidated settlement guarantee fund) could be studied to mitigate these risks. - Self-assessments and improvement considerations (summarized): - Cheque clearing process (Box 2): - Classified as a Retail System of Systemic Importance. - SAMA assessed CPSIPS compliance: fully compliant – VI, VIII, IX; almost fully compliant – X; adequately compliant – I, II, III, IV, V, VII. - No clear Business Continuity Plan (BCP) for cheque clearing houses; manual operation and shifting to other clearing houses are contingency measures. - Clearing house net settlement positions from ten clearing houses are netted with SADAD and SPAN and settled at SARIE; rules for unwinding in event of settlement failure not adequately specified. - Considerations: establish upper value limit for cheques requiring settlement in SARIE; consider pricing policy to discourage cheque usage. - SPAN system (Box 3): - Classified as a Retail System of Systemic Importance. - SAMA assessed CPSIPS compliance: fully compliant – VI, VIII, IX; almost fully compliant – I, II, III, IV, VII, X; adequately compliant – V. - Settlement is on a multi-lateral net basis at SARIE and further netted with other net settlement systems; unwinding prioritization not well-defined. - For customers, transactions are effectively final (e.g., ATM withdrawals); settlement failure impacts acquiring banks and merchants. - Mitigants could include limits, collateral requirements, and settlement guarantee funds. - Operational statistics and planned enhancements: - In January 2011, 6.8 percent of the POS transactions and 9.8 percent of the ATM transactions were unsuccessful, with over 10 percent of the failures being due to system errors. - For year 2010, the system uptime was 99.9 percent. - Planned 2011 enhancements: (i) strategic re-pricing to create incentives for issuers of payment cards; (ii) re-branding of the SPAN payment brand; (iii) introduction of prepaid cards to meet needs of the 12 million unbanked; (iv) systems upgrade to bring in real-time monitoring of system performance; and (v) establishment of an internal quality assessment team. - SPAN currently does not process transactions initiated through the internet and mobile phones; SAMA could consider enhancements for routing and authorization from these channels. - No formal mechanism for reporting fraudulent transactions to SPAN; data on fraud held at issuer level. SPAN could require reporting of fraudulent transactions to enable fraud mitigation services. - SADAD system (Box 4): - Classified as a Retail System of Systemic Importance. - SAMA assessed CPSIPS compliance: fully compliant – VI, VII, VIII, IX; almost fully compliant – I, II, III, IV, V, X; adequately compliant – IX (note: apparent repeat in source). - SADAD payments are settled in SARIE. - Unclear impact of settlement failure on billers and payers; mechanisms to unwind transactions and protect interests need to be instituted. - Membership rules determined and enforced by SAMA; currently only high-volume billers and Government entities are accepted. Membership rules are not publicly available. - SAMA reviewing membership rules to enable participation of smaller billers; could consider enabling participation of specialized bill aggregators. - Securities Depositary Centre (Box 5): - The CMA assessed the Securities Depositary Center (SDC) using CPSS-IOSCO Recommendations for Securities Settlement Systems (RSSS). - SDC in full compliance with fourteen CPSS-IOSCO recommendations; of remaining five, three are inapplicable (5, 9 and 19), one (16) is broadly observed, and one (17) is partly observed. - Legal framework is well-founded, clear and transparent; laws, regulations and procedures are public and accessible to participants. - Settlement risk minimized by dematerialized holdings, client-named accounts, conclusive SDC records, and trading execution only where seller has securities and Clearing Bank will guarantee payment. - Equity and ETF trades settle in real time on T+0 according to a DVP model 1 arrangement. Sukuk and corporate bond trades settle on a T+2 basis according to a DVP model 3 arrangement. - A form of settlement risk exists as cash settlement takes place in the books of 15 commercial banks (Clearing Banks) and ultimate reconciliation by Clearing Banks utilizing SARIE occurs only at end of day after securities transfer. - Payment flows fairly distributed between Clearing Banks, ranging from 8 percent to 16 percent of the gross daily payment flow. - A committee consisting of representatives from the CMA, the SAMA and Tadawul reviews the clearing and settlement process. - Operational risk is well managed; Tadawul has a business continuity plan and backup facilities that are regularly tested. - The SDC does not use international communication procedures and standards; cross-border linkages are not in place or currently contemplated. - The CPSS-IOSCO disclosure framework is currently not public but will be disclosed following the self-assessment. ### Improvement considerations and suggested mitigants (from assessments) - Consider separation of low and mass payments from large value ones and processing the former in an ACH type system. - Engage participants to verify whether settlement of a single netting position for all retail systems exposes systems to operational spillover effects in case of problems in one clearing process. - Study a comprehensive risk management framework combining net-debit limits in individual systems with a consolidated settlement guarantee fund to mitigate cross-system settlement risks. - For cheque clearing and SPAN: consider upper value limits, aggressive pricing to discourage cheques, collateral requirements, settlement guarantee funds, real-time monitoring, fraud reporting mechanisms, and expansion to internet and mobile-initiated transactions. - For SADAD: institute clear unwinding mechanisms to protect billers and payers; review and publicize membership rules and consider enabling participation of smaller billers and specialized bill aggregators. - For Securities Settlement Systems: consider adopting relevant international communication procedures and standards if cross-border linkages are contemplated; disclose the CPSS-IOSCO disclosure framework as indicated. *Source: _cr13214 - 2006. Fees are divided into:* ### Box 5). The legal framework could be improved by the formal inclusion in the law of the ### _cr13214 - Box 5). The legal framework could be improved by the formal inclusion in the law of the ### Securities settlement, netting, and segregation - The legal framework could be improved by the formal inclusion in the law of the concept of netting. - The segregation of client money and client assets, which is currently covered by the Authorized Persons Regulation, could be included in the law. - Equities transactions are settled on T+0 with the cash leg occurring at the end of the day and the transfer of securities being executed immediately after trade confirmation. - Risks in the settlement process are mitigated by the existence of caps and other controls, such as the prohibition of short selling. - The CMA, Tadawul and the SAMA are in advanced phase to move towards intra-day settlement based on DVP. - Fair and open access to the settlement infrastructure by broker/dealers, in particular those that do not belong to a bank, should be discussed in the context of this reform. - The government securities registry might be further integrated through appropriate interfaces with SARIE to facilitate collateralization in the RTGS system, as well as settlement of secondary market transactions, which might favor the development of the secondary market. ### SAMA: objectives, oversight, and institutional setup - The SAMA has played a fundamental catalyst role in the development of a safe and efficient payments system in Saudi Arabia. - The SAMA has been periodically communicating its objectives with respect to the payment systems (notably specified objectives in 1997 in the establishment of the SARIE system and periodic reviews, most recently the IPPS review). - The SAMA’s oversight authority is stated in general terms in the central bank charter (Article 3) and banking law (Article 16). However, the SAMA’s detailed objectives are not specified in the law or regulation. - The SAMA has not clearly specified its oversight policies in a public document. - The SAMA is setting up a dedicated oversight unit, initially placed within the BTD, and is working to equip it with the proper skills and resources. - The principles of separation between payment system operations and oversight is recognized and increasingly operationalized within the SAMA. - The SAMA owns and operates all the interbank payment systems in Saudi Arabia, and also oversees them. Corporate SSS are supervised by the CMA. - The SAMA has periodic high-level interactions with the CMA, including by participating to a joint committee which comprises Tadawul as well. There are no formal arrangements in place for co-operative oversight, although an MOU is under discussion. - Internally, the SAMA BTD carries out its oversight function in cooperation with the banking supervision and banking inspection departments. - Cooperation at the GCC and Arab regional level: SAMA cooperates actively with other central banks, is an active member of the Committee on Payment Systems of the Arab Central Banks, works with the Arab Monetary Fund, the IMF, and the World Bank under the Arab Payments Initiative, and recently joined the CPSS as member of the payments committee. - No NPS/Council committee is established in Saudi Arabia, though technical working groups are active. ### Assessment summary and key statistics - Table 10 summary: - Observed 8: CP2, CP3, CP4, CP6, CP7, CP8, CP10, Responsibility B - Broadly observed 5: CP1, CP9, Responsibilities A, C, D - Partially observed: - - Non-observed: - - Not applicable 1: CP5 ### Recommended actions (selected, by reference principle) - Legal foundation (Core principle 1) - The SAMA should start a process that could lead to the enactment of a specific payment system law to exclude explicitly any conflict with other laws and regulations. - Understanding and management of risks (Core principles 2 and 3) - In the 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 in order to activate intraday liquidity facilities in a more automatic fashion. - Settlement (Core principles 4, 5 and 6) - (Recommendations linked to settlement in table; security and operational reliability addressed below.) - Security and operational reliability, and contingency arrangements (Core principle 7) - The SAMA is working actively to address occasional data communication delays. - The SAMA could engage participants to verify whether the settlement of a single netting position for all retail systems does not expose these systems to operational spillover effects in the event of problems in one of the clearing processes. - Efficiency and practicality of the system (Core principle 8) - Operating hours and the daily business cycle might need to be extended and the calendar for settlement of other systems in SARIE reconsidered in light of technological and business developments. The SAMA is engaged in discussions with commercial banks on this topic. - Criteria for participation (Core principle 9) - The SAMA should issue a risk-based access policy and disclose its criteria for fair and open access to SARIE by financial institutions. Possible access by nonbank financial institutions to the SAMA settlement systems should be discussed. - Governance of the payment system (Core principle 10) - The SAMA’s role in the payment system might be further clarified in an upcoming ministerial decree. - Central Bank responsibilities (A, B, C, D) - The SAMA should clarify in detail its policy stance in payment system oversight in a publicly available document, expanding on scope, actions, and plans to achieve public policy objectives. - The SAMA should accelerate the process of creating a full-fledged oversight unit and consider where to place it within SAMA to enhance visibility. - The SAMA and the CMA are encouraged to finalize their MOU and include specific references to areas of joint interaction in the payments and settlements space; structured cooperation could take the form of joint technical working groups of a permanent nature. - SAMA could prepare MOU among different departments with a stake in the payments field. - An NPS Council/Committee could be constituted as a consultative and cooperative body comprising representatives from relevant stakeholders to provide an umbrella for existing technical committees and enhance visibility of the topic. ### Authorities’ response (selected points) - The authorities acknowledged the high level of standardization reached by the Saudi financial market. - The assessor highlighted that the Banking Control Law (BCL) provides SAMA with a legal framework for payment systems. - The assessor recognized that the level of risk in securities settlement is mitigated by the fact that short-selling is not allowed and stocks are prefunded. - Other comments from SAMA: - According to SAMA, there is no compelling reason to expand the membership of the SARIE system. - SAMA did not share the assessor’s opinion that the current oversight regulation is not sufficiently detailed for the overseer to fully exert its power; SAMA also did not endorse the recommendation that a specific oversight unit should be created. - SAMA stressed that although they are always looking for opportunities for improvement, they believe the current framework to be the most appropriate for the Saudi market. * _cr13214 - Box 5). The legal framework could be improved by the formal inclusion in the law of the* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13214.pdf_