GCC Payments System (AFAQ) Remittance Service Document for the Local Banking Sector

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Saudi Central Bank

Reference No.: 42068309 Date: 1442/09/24 AH Attachments: 24 pages

Circular

To: Respected Banks,

Peace, mercy and blessings of God be upon you.

Subject: GCC Payments System (AFAQ) Remittance Service Document for the Local Banking Sector.

Reference is made to the GCC Instant Settlement System project "AFAQ", aimed at providing a unified environment for financial transfers among Gulf Cooperation Council (GCC) countries and delivering financial services to all categories through fast, secure, and efficient cross-border transfers. The system serves as a pillar ensuring the flow of payments in the local banking sector and supporting bilateral and multilateral trade activities, thereby enhancing economic cooperation and integration among GCC member states.

Attached is the GCC Payments System (AFAQ) Remittance Service Document for the Local Banking Sector. For information and action from its date.

Yours sincerely,

[Signature]

Fahd bin Ibrahim Al-Shathri Deputy Governor for Supervision

[Signature]

Distribution Scope:

• Banks and financial institutions operating in the Kingdom.

P.O. Box 2992, Riyadh 11169, Kingdom of Saudi Arabia | Tel: +966 11 463 3000

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Operating Rules for Cross Currency Payments using AFAQ Service

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Table of Contents

Section	Page No.
1. Definitions	5
2. Introduction	6
2.1. General	6
2.2. Purpose	6
2.3. Statuary Authority	6
2.4. Scope	6
2.5. Amendment	6
2.6. Compliance	7
2.7. Charges	7
2.8. Controlled Documents	7
3. Direct Participants	7
3.1. Direct Participants Admission	7
3.2. Suspension or Termination of Direct Participants	7
3.3. Withdrawal of Direct Participants	7
3.4. Obligations on Cessation	7
3.5. Notice	7
4. Systems & Operations	8
4.1. Overview of AFAQ Service’s Architecture	8
4.1.1 Sending Domestic RTGS	8
4.1.2 RPG	8
4.1.3 Sending RPG	8
4.1.4 Receiving RPG	9
4.1.5 AFAQ Service CC	9
4.1.6 Receiving Domestic RTGS	9
4.1.7 Country Specific Model (CSM)	9
4.2. Service’s Architecture	10
4.3. SAMA’s Systems	10

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4.4. Direct Participants’ Systems	10
4.5. Certification	10
4.6. Monitoring	10
4.7. Responsibility for Liquidity	10
4.8. Information	10
4.9. Enhancements to Systems	10
4.10. Service Levels	10
4.11. Reporting	10
4.12. Operating Procedures	11
4.13. Contingencies	11
4.14. Tests	11
4.15. Back-ups	11
4.16. Confidentiality	11
4.17. Security	11
4.18. Fraudulent Activities	11
4.19. Accounts at SAMA	11
5. Business Day Timetable and Calendar	11
5.1. Timetable	11
5.2. Business Days	13
5.3. Calendar	13
5.4. Cut-off	13
5.5. Limits on Transactions	13
5.6. Closures	13
5.7. Availability	13
6. FX Rates and Currency Conversion	13
7. Payment Messages	13
7.1 Eligible AFAQ Transactions	13
7.2. Qualified Payment Messages	14
7.3. Payments Processing	14
7.4. Completion of a Payment	15

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7.5. Confirmation of Completion	15
7.6. Crediting Beneficiary’s Account	15
7.7. Value to Correct Beneficiary	16
7.8. Returns by the Receiving Direct Participant	16
7.9 Return Payment Rules	16
7.10 Reasons for Return or Rejection	17
7.11 Payments to the UAE	17
7.12 IBAN	17
7.13 Finality Provisions	17
7.14 Cancellation	17
7.15 Anti-Money Laundering and Combating Terrorist Financing	17
8 Miscellaneous	17
8.1 Liabilities of SAMA	17
8.2 Force Majeure	17
8.3 Emergencies	18
8.4 Direct Participants Act as Principals Only	18
8.5 Assignments	18
8.6 Dispute Settlement	18
8.7 Severability	18
8.8 Governing Law	18
Appendix 1 – Controlled Documents	18
Appendix 2 – Return and Rejection Codes	20

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1. Definitions

In this Operating Rules, the following terms will have the following meanings except as the context may otherwise require:

Term	Definition
SAMA	Saudi Central Bank.
NCB	National Central Bank (NCB) or Monetary Authority of each of the six GCC countries.
GPC	Gulf Payments Company.
AFAQ	Arabian Gulf System for Financial Automated Quick Payment Transfer
Confirmed Exchange Rate	The exchange rate to be used for conversion between a pair of GCC currencies. This rate is confirmed and guaranteed by the relevant NCBs on every Business Day for use throughout that Business Day.
Cross-currency payment	Payment from the bank of one country to a bank from another country through the GCC RTGS Central Component. The Paying Bank sends funds in its country domestic currency, and the Receiving bank receives funds in its country domestic currency.
CSM	Country Specific Model.
Domestic RTGS	The RTGS system operated by each NCB for processing domestic and eligible cross-currency cross-border payments. The Domestic RTGS systems act in both Sending and Receiving mode. For clarity purposes in this OR references to the “Receiving Domestic RTGS” and “Sending Domestic RTGS” are used to illustrate various actions performed by these systems while they are acting in either Receiving or Sending mode.
AFAQ CC	The Central Component (CC) of the AFAQ Service.
OR	Operating Rules.
RPG	Regional Payment Gateway. The RPG acts in both Sending and Receiving mode.
Arbitrage	The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same currency or asset.

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2. Introduction

2.1. General The "Arabian Gulf System for Financial Automated Quick Payment Transfer" (AFAQ) is the Real Time Gross Settlement service for cross-currency cross-border payments between Gulf Cooperation Council (GCC) Countries; that is owned and managed by the National Central Banks (NCBs) of the six GCC countries (Kingdom of Saudi Arabia, United Arab Emirates, Kingdom of Bahrain, Sultanate of Oman, Qatar and Kuwait).

AFAQ Service is in line with the Charter of the Cooperation Council for the Arab States of the Gulf, which aims at achieving closer convergence and stronger links among the GCC countries, reaching advanced economic and financial integration, promoting collaboration, integration, interconnectedness and all aspects of cooperation among the GCC member states and their people at all levels.

2.2. Purpose With the aim of Facilitating cross-border payments in the region, providing essential infrastructure to enable the on-going integration of financial markets across the GCC region, utilizing the advantages of real-time gross settlement, Encouraging closer financial and economic integration between the GCC countries; SAMA has implemented a Specific Model in which functions of the Domestic RTGS system for both Sending & Receiving cross-border payments will be performed at the AFAQ Service 's Central Component hosted technically by the Gulf Payments Company (GPC); While controlled, supervised & operated by SAMA according to the Operating Rules.

2.3. Statuary Authority Without prejudice to Saudi Central Bank "SAMA" rights under applicable laws and regulations, these Operating Rules are constituted by SAMA in exercise of the powers stipulated in the Saudi Central Bank Law dated 11.4.1442H (26.11.2020); Designating SAMA as the competent authority to Establish, Develop & Operate national infrastructures for Payment, Clearing & Settlement systems; Issue rules, guidelines, and licenses; Control and Oversee Payment, Clearing & Settlement systems within its sphere of competence.

2.4. Scope These Operating Rules will cover the following areas: a) Key operational activities across cross currency payments using AFAQ Service; hereinafter referred to as "the Service", b) Business Rules for access and eligibility of Direct Participants, suspension, termination and withdrawal of Direct Participants, c) Payment Rules for eligible payments, d) Business day timetable and calendar, e) Claims and dispute management f) Business continuity and contingency arrangements.

2.5. Amendment SAMA may amend, replace or supplement the contents of these Operating Rules as it deems fit; in consultation with Participants. Such amendment will be duly notified to Direct Participants.

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2.6. Compliance Each Direct Participant will comply with these Operating Rules.

2.7. Charges The Direct Participants will pay SAMA’s charges for the use of the Service in accordance with the Service Charging Policy issued by SAMA, as amended by SAMA from time to time.

2.8. Controlled Documents A list of controlled documents which delineates operations of the Service is included in APPX (1). The controlled documents set out the detailed system operations.

3. Direct Participants

3.1. Direct Participants Admission SAMA may admit Direct Participants as members of the Service if in the opinion of SAMA they meet the qualifying criteria as defined by SAMA from time to time. A Direct Participant in the Service must be:

• Participating in the Saudi Arabian Riyal Interbank Express System (RTGS).
• Maintaining a current AFAQ’s account in accordance with SAMA's banking conditions.
• Complying with legal, supervisory, technical & operational requirements communicated by SAMA.
• A Signatory to the Agreement of Participation in the Service.

3.2. Suspension or Termination of Direct Participants On notice to a Direct Participant, SAMA may in its discretion suspend a Direct Participant temporarily or terminate a Direct Participant permanently (in each case with immediate effect or as otherwise prescribed in the notice) if the Direct Participant fails to comply with the qualifying criteria defined by SAMA from time to time or if the Direct Participant is, or states that it is, or SAMA reasonably suspects that it may be insolvent or if Direct Participant's relevant licence is revoked or if the Direct Participant fails to comply with these Operating Rules or if, in the good faith opinion of SAMA, the continued membership of the Direct Participant may prejudice the Service or the other Direct Participants or is undesirable.

3.3. Withdrawal of Direct Participants Subject to receiving a prior written consent of SAMA, a Direct Participant may withdraw from the Service upon serving a written notice to SAMA within a period not falling less than thirty 30 days prior to the proposed withdrawal date.

3.4. Obligations on Cessation In case of cessation, the Direct Participant will remain liable for all its accrued and accruing obligations under these Operating Rules. SAMA may give directions as it sees fit to give effect to the suspension, termination or withdrawal of the Direct Participant, including without limitation the surrender of its rights, software and materials in respect of the Service and the continued use or non-use of the Service.

3.5. Notice SAMA will as soon as practicable give the other Direct Participants notice of changes to or suspensions of a Direct Participant.

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4. Systems & Operations

4.1. Overview of AFAQ Service’s Architecture The AFAQ Service is made up of the following components:

• Sending Domestic RTGS system,
• Sending Regional Payment Gateway (RPG),
• Central Component,
• Receiving Regional Payment Gateway (RPG),
• Receiving Domestic RTGS system,
• Communications network linking all of the other components of the full system,
• In the case of the countries using the CSM, the functions of the Domestic RTGS system, for both Sending & Receiving cross-border payments, will be performed at the AFAQ Service CC. The service is technically hosted by GPC. The service is managed by the NCB of the country using the CSM as part of their Domestic RTGS services.

4.1.1 Sending Domestic RTGS The Sending Domestic RTGS system, operated by that country's NCB, handles all communications with the Direct Participants in the sending country. It also deals with all aspects of the processing of outward cross-border payments in accordance with the OR of that country's Domestic RTGS system, including, message validation, accounting, verification of availability of funds on the account of the Sending Participant, debiting the account of the Sending Participant, crediting the account of the Receiving NCB and translation of the messages, if necessary, to the format required by the Sending RPG.

4.1.2 RPG RPG’s main functions are to validate, transform and route the cross-border payment messages.

• Message routing and validation,
• Message queuing in any event causing the AFAQ Service or RPG to queue messages until they can be delivered,
• Handling of Payment Completion Confirmations,
• Exception handling and return of payments,
• Systems management and access control,
• Synchronization of static data with the AFAQ Service CC.
• Holding of the current Participant Directory for message validation purposes.
• Holding of the current FX Translation Rates table for message validation purposes.
• Holding of the current Calendar for message validation purposes.
• Conversion of message formats MX from/to MT.
• Rejection of cross-border cross-currency payments where validation fails.

4.1.3 Sending RPG The Sending RPG, operated by that country's NCB, receives individual payment messages from the Sending Domestic RTGS system, validates the message format, encrypts all the sensitive data, adds the summary data required for settlement and prepares the full message for transmission to the AFAQ Service CC. The Sending RPG also processes Payment Completion Confirmation messages from the AFAQ Service CC and matches them with the previously sent payment messages.

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4.1.4 Receiving RPG The Receiving RPG, operated by that country's NCB, receives payment messages from the AFAQ Service CC, decrypts the sensitive data, translates the messages into the format required by the Receiving Domestic RTGS system and forwards the messages to the Receiving Domestic RTGS.

Any data not included in the message from the Receiving RPG to the Receiving Domestic RTGS system is retained and available in the Receiving RPG. Receiving Direct Participants and Receiving NCBs have access to this data.

The Receiving RPG also processes Payment Completion Confirmation messages from the Receiving Domestic RTGS, matches them with the previously sent payment messages and transmits the Completion Confirmation to the AFAQ Service CC.

4.1.5 AFAQ Service CC The AFAQ Service CC will perform the following main functions:

• Receive payment messages from the Sending RPG,
• Validate the message format and content,
• Perform the accounting entries over the shadow accounts of sending and receiving NCBs, and the Primary Accounts of Direct Participants in the case of countries using the CSM,
• Transmit the payment message to the Receiving RPG, or, to the Direct Participants in the case of countries using the CSM,
• Process Payment Completion Confirmation messages from the Receiving RPG, match them with the previously sent payment messages and transmit the Completion Confirmation to the Sending RPG, or, to the Direct Participants in the case of countries using the CSM,
• Process payment rejections and returns,
• Maintain the Direct Participants directory,
• Maintain FX Exchange Rates for cross-currency conversion and end-of-day Settlement,
• Maintain the Business Day Timetable and Calendar,
• Provide enquiry services to NCBs, and to the Direct Participants in the case of countries using the CSM,
• Produce and transmit MT950 Shadow Account statements at end-of-day, and
• Perform end-of-day Settlement activities.

4.1.6 Receiving Domestic RTGS The Receiving Domestic RTGS system, operated by that country's NCB, handles all communications with the Direct Participants in the receiving country. It also deals with all aspects of the processing of inward cross-border payments in accordance with the rulebook of that country's RTGS system, including, debiting the account of the Sending NCB, crediting the account of the Receiving Participant, sending of the Payment Completion Confirmation to the Receiving RPG and transmission of the inward payment message to the Receiving Participant.

4.1.7 Country Specific Model (CSM) The architecture for the CSM is the same as for the standard RPG configuration except that there is no automated communication with the country's Domestic RTGS system that processes domestic transactions.

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4.2. Service’s Architecture As SAMA has adopted the CSM for carrying out SAMA and Direct Participants operations in AFAQ's Service, the functions of a Domestic RTGS system in respect of both inward and outward cross-border payment processing and bookkeeping of Direct Participants' mirror accounts and the relevant NCB shadow accounts are performed in the AFAQ Service CC.

4.3. SAMA's Systems SAMA controls the installation, maintenance, operation, security, and contingency of the Service and has the right to regulate, administer and monitor the Service using the facilities afforded.

4.4. Direct Participants’ Systems Each Direct Participant is responsible at its own cost for the development, maintenance, security and reliability (including back-up and contingency) of its host system connected to the Service and any links from or to the Service.

4.5. Certification No Direct Participant may use the Service until it and its systems used in relation to the Service have been certified by SAMA.

4.6. Monitoring SAMA has the right to monitor relevant Direct Participant’s activities for the sake of ensuring that the Service is operated properly, exercising responsibility for central risk management and mitigating pertinent risks.

4.7. Responsibility for Liquidity SAMA has no responsibility to monitor Direct Participant’s liquidity. It is the responsibility of each Direct Participant to manage its own Liquidity.

4.8. Information The Service provides reporting and enquiry facilities operating in near real-time; giving each Direct Participant immediate visibility of respective position & enabling it to manage its Liquidity.

4.9. Enhancements to Systems SAMA may arrange for enhancements and changes to the Service and advise the Direct Participants accordingly, giving such notice before the changes are to be implemented as SAMA considers reasonable. SAMA may give directions for the safe, accurate and timely implementation of changes, updates and distributions. The changes will be binding on the Direct Participants and each Direct Participant will at its own cost carry out all necessary tests & modifications to its own systems linked to the Service and to its pertinent procedures to give effect to these measures.

4.10. Service Levels SAMA may from time to time specify the service levels to be provided by the Service and by the Direct Participants systems used in connection with the Service.

4.11. Reporting Each Direct Participant must inform SAMA immediately of any event which may affect its role or function as a Direct Participant in the Service, including any known or planned disconnection from the Service, or any significant changes to its host system interface to the Service, its organisation, or environment.

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4.12. Operating Procedures Each Direct Participant must maintain their own internal operating procedures that comply with these Operating Rules.

4.13. Contingencies Each Direct Participant must ensure that their back-up and contingency procedures are such that the Service is capable of completing their daily processing requirements, without compromising the integrity, security, or performance of the Service. Each Direct Participant will ensure that it has access to adequate contingency facilities to enable it to send and receive its Payment Messages at least during the Operational Phase of the Business Cycle. Each Direct Participant shall ensure that their contingency procedures allow the resumption of operations at the contingency site when required, with the minimum loss of operational time in accordance with the Business Continuity Management Framework published by SAMA, as amended from time to time.

4.14. Tests Each Direct Participant will comply with the Business Continuity Management Framework issued by SAMA & conduct realistic tests of contingency facilities at least twice annually to ensure the readiness and capability of operations. Signed records of the conduct of such tests must be retained.

4.15. Back-ups Each Direct Participant is responsible for backing up data and programs for its own the Service operations.

4.16. Confidentiality Unless advised otherwise by SAMA, the Direct Participant agrees to keep confidential all information concerning SAMA's business or its ideas, intellectual properties, products, customers or services that are of confidential, proprietary or trade secret nature.

4.17. Security The Direct Participants will abide by applicable rules, regulations, policies & frameworks issued by SAMA; including the Service Security Policy as amended by SAMA from time to time. The Direct Participant must ensure the security and soundness of (SAMA – AFAQ) operations and inform SAMA in case of any security incidents.

4.18. Fraudulent Activities The Direct Participant must take necessary actions & implement adequate measures to prevent, detect and respond in a timely manner to fraudulent activities involving the Service & report such activities to SAMA and the Direct Participants concerned in accordance with relevant fraud prevention guidelines.

4.19. Accounts at SAMA Each Direct Participant must maintain a current Service account at SAMA. Relevant Direct Participant's account must be held in accordance with SAMA's banking conditions from time to time.

5. Business Day Timetable and Calendar

5.1. Timetable The timetable will allow all Direct Participants to provide a high level of service to their customers. The Business Day Timetable will be impacted by providing adequate time for the completion of start-of-day and

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end-of-day business processes and to allow reasonable time for extending the period required for “pre end-of-day activities” in the event of problems or delays.

Some of the Business Day times are controlled by the system(s) while others are intended as times that all parties must adhere to.

The following key events occur during the course of the business day (Business Day Period):

1. System start.
2. FX Translation Rate adjustment – NCBs can send messages with FX Translation Rates; the official rate for their currency against the USD.
3. FX Translation Rate authorization - at the beginning of the period AFAQ Service CC calculates the cross-rates for all currency pairs and delivers them to NCBs for approval. NCBs send authorization messages: either approval or decline. In case no approval or decline is received, the FX rate is considered as unconfirmed. The system will prohibit cross-border payments for unconfirmed pairs of currencies.
4. System Housekeeping - at the beginning of the period, the system sends FX Translation rates notifications to the NCBs for all approved currency pairs. This period is also used for other housekeeping e.g. Business Day Calendar changes and Participant Directory updates.
5. Start of Day Funding: In accordance with SAMA's banking conditions the Direct Participant wishing to transact through AFAQ on a specific day shall prefund their respective account with SAMA through the Saudi Arabian Riyal Interbank Express "RTGS" on a daily basis to ensure that available balance in AFAQ is sufficient to cover all payment messages of all types as they face.