Regulatory Alerts2007-01-09
Controls on Customers' Blank Order Bonds Signed in Exchange for Banking Facilities
The Saudi Arabian Monetary Authority (SAMA) issued this circular to regulate the use of blank order bonds signed by customers in exchange for banking facilities. It mandates that banks ensure all bond details are completed upon signing, return and replace bonds when renewing or modifying loans, restrict claims to the actual amount due based on account statements, and prevent the use of bonds for purposes other than their original intent. These controls take effect immediately to prevent misuse and ensure compliance with existing anti-fraud and commercial paper regulations.
In the Name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority (SAMA) Headquarters
Banking Supervision Department No.: 45227/BS/743 Date: 19 Dhu al-Hijjah 1427H Corresponding to: 9/1/2007G Attachments: -
Circular
To: .................................................................................... Respected Banker, Peace, mercy and blessings of Allah be upon you.
We wish to inform you of the issuance of His Majesty's Noble Order No. 8195/BS dated 13/11/1427H, which approves the recommendations contained in the minutes of the ministerial committee established to study the subject of certain bank customers signing blank order bonds (on white paper) in exchange for obtaining banking facilities. This order confirmed the permissibility of signing on blank, based on Article 5 of the Anti-Fraud System issued by Royal Decree No. M/14 dated 26/11/1380H, as well as Article (14) of the Commercial Papers System issued by Royal Decree No. M/37 dated 11/10/1380H, and judicial rulings issued by the offices for resolving commercial paper disputes.
Based on the aforementioned Noble Order and its recommendations aimed at preventing the misuse of blank signatures, banks operating in the Kingdom must observe the following controls when conducting banking transactions:
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In the case of loans and credit facilities with a specified limit and maturity date, the bank must ensure that all details on the order bond(s) are filled in upon signing, according to the loan amount or facility limit.
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In the event of renewing the relationship with the customer or modifying the loan or facility, the bank must return the order bond(s) pertaining to the renewed or modified contract to the customer and obtain a new bond or bonds reflecting the updated relationship, as stated in paragraphs (1 and 2).
P.O. Box 2992, Riyadh 11669, Central Telegraph, Telex 404400, Telephone 4633000, Fax 4662119
In the Name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority (SAMA) Headquarters
Banking Supervision Department No.: .................................... Date: .................................... Corresponding to: .................................... Attachments: ....................................
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The bank must restrict claims under the order bond(s) to the amount due from the customer, based on relationship documents and account statements at the time of filing the lawsuit.
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The bank must not use the order bond for purposes other than those for which it was created.
The Authority therefore requests the implementation of the aforementioned controls and compliance therewith effective from this date, and notifies all your branches accordingly.
Yours sincerely,,,
Acting Governor for Technical Affairs Dr. Abdulrahman bin Abdullah Al-Humaid
- Distribution Scope: Banks operating in the Kingdom of Saudi Arabia.
P.O. Box 2992, Riyadh 11669, Central Telegraph, Telex 404400, Telephone 4633000, Fax 4662119