Amendment of the Finance Companies Control Law

[Logo of the Saudi Central Bank]

Circular

No.: 45076651
Date: 1445/12/21
Attachments: None

To: Respected,

Peace, mercy and blessings of God be upon you,

Subject: Amendment of the Finance Companies Control Law.

In reference to the Royal Decree No. (M/51) dated 13/8/1433 AH, which issued the Finance Companies Control Law.

We inform you of the issuance of Royal Decree No. (M/272) on 4/12/1445 AH, approving the amendment of several articles of the Finance Companies Control Law, as follows:

1. Amendment of the definition of "Finance Company" in Article (One) of the Law, to read as follows: "Finance Company: A company licensed to conduct financing activities."
2. Addition of a paragraph numbered (5) to Item (First) of Article (Five) of the Law, stipulating as follows: "The company shall take the form of a joint-stock company. The Bank may license companies in other forms if it deems that the proposed business model or nature of activity so requires, provided this does not compromise financial system stability and fairness in transactions." And amendment of the current paragraph (5) order to become paragraph (6).
3. Amendment of paragraphs (1) and (2) of Article (Eleven) of the Law, to read as follows:
   "1. Conducting any other activity besides financing only after obtaining the Bank's approval.
   2. Owning an establishment that conducts any other activity besides financing, whether directly or indirectly, only after obtaining the Bank's approval."
4. Amendment of sub-paragraph (d) of paragraph (1) of Article (Twelve) of the Law, to read as follows: "Financing or granting facilities to persons or establishments, if one of the members of the board of directors of the finance company, or one of its managers, or one of the members of its board of managers, or those in their stead -as applicable-, or one of its external auditors, is a guarantor for obtaining the financing or facilities."
5. Amendment of paragraph (2) of Article (Twelve) of the Law, to read as follows: "Without prejudice to the public and private rights established by the laws, each member of the board of directors of a finance company, and each manager of a finance company, and each member of its board of managers or those in their stead -as applicable-, and each external auditor of a finance company, who obtained financing contrary to any provision in paragraphs (1/b), (1/c), or (1/d) of this article, shall be considered dismissed in accordance with what the bylaws specify."

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6. Amendment of the text of Article (Sixteen) of the Law and its paragraphs (1) and (2), to read as follows: "The following conditions are required for membership in the board of directors, managers, or board of managers of a finance company, or those in their stead -as applicable-:
   1. Not being a member of the board of directors of another finance company conducting the same activity, or one of its managers, or one of the members of its board of managers, or those in their stead, as applicable.
   2. Not combining work in finance companies control or its audit, with membership in the board of directors of a finance company, or being one of its managers, or one of the members of its board of managers, or those in their stead, as applicable."
7. Amendment of Article (Seventeen) of the Law, to read as follows: "Each of the board of directors, managers, and members of the board of managers or those in their stead -as applicable-, the general manager, senior executives, and branch managers of a finance company shall be responsible -each within their scope of authority- for the company's violation of the provisions of the Law or its bylaws."
8. Amendment of Article (Eighteen) of the Law, to read as follows: "Without prejudice to what is stipulated in paragraph (1/a) of Article (Twelve) of the Law, members of the board of directors, managers, and members of the board of managers or those in their stead -as applicable- of a finance company shall bear joint liability for guaranteeing the company's rights against losses resulting from providing financing without collateral."
9. Amendment of Article (Nineteen) of the Law, to read as follows: "Each joint-stock finance company shall have an audit committee composed of non-executive board members. A resolution from the company's general assembly, based on the board's proposal, shall be issued regarding its duties, rules for selecting members, tenure, and operational procedures."
10. Amendment of Article (Twenty) of the Law, to read as follows: "The chairman and members of the board of directors, managers, and members of the board of managers or those in their stead -as applicable-, and company employees must, when concluding any financing contracts within their decision-making authority, disclose in writing the following:
    1. Any relationship of any of them with the contract.
    2. Any relationship of their relatives up to the second degree with the contract.
    3. Any financial interest they have in the party related to the contract.
       And the aggrieved party may, in case of non-disclosure, file a lawsuit before the competent court requesting contract annulment."
11. Amendment of the title of Chapter (Fifth) of the Law, from "Supervision of Finance Companies" to "Supervision."
12. Amendment of Article (Twenty-One) of the Law, to read as follows: "Subject to paragraph (2) of Article (Ten) of the Law, the Bank supervises the operations of finance companies, establishments conducting financing support activities, and contract registration companies licensed under the provisions of the Financial Leasing Law, and exercises its authorities in accordance with the Law and its bylaws."

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13. Amendment of Article (Twenty-Nine) of the Law, to read as follows: "If a finance company, an establishment conducting financing support activities, or a contract registration company commits violations related to professional breaches or transactions that endanger its shareholders, partners, or creditors, or if the company's or establishment's debts exceed its assets, the Bank shall, by written decision -proportionate to the violation size- take one or more of the following against the company or establishment:
    1. Issuing a warning to it.
    2. Requiring it to submit a suitable program outlining the measures it will take to rectify the violation and correct the situation.
    3. Ordering it to suspend some operations, or prohibiting it from distributing dividends.
    4. Imposing the fine stipulated in Article (Thirty-Four) of the Law, as applicable.
    5. Ordering the suspension of the violating person -other than members of its board of directors, managers, or board of managers, as applicable- temporarily, or ordering their dismissal depending on the severity of the violation.
    6. Temporarily suspending the chairman of its board, or any member of the board, manager, or members of the board of managers, as applicable.
    7. Appointing one or more advisors to provide consultation for managing its operations at its expense.
    8. Suspending the authority of its board of directors, manager, or members of the board of managers, as applicable, and appointing a manager at the company's expense to manage its operations until the grounds for suspension cease, as determined by the Bank. If the Bank deems that the violation warrants license revocation or company/establishment liquidation, it shall file a lawsuit before the competent court. The Bank may, in cases it deems fit, suspend the license until a ruling is issued on the lawsuit."
14. Addition of an article to the Law numbered (Thirty-Six Repeated), reading as follows: "The Bank may exempt one or more finance companies from the application of certain provisions of Chapters (Third), (Fourth), and (Fifth) of the Law, ensuring fairness in transactions and financial system stability."

For your information.

Yours sincerely,

[Signature]
Yazed bin Ahmed Al-Sheikh
Deputy Governor for Supervision

Distribution Scope:

• Banks and financial institutions operating in the Kingdom.
• Finance companies operating in the Kingdom.
• Contract registration companies for financial leasing.
• Companies providing financing support activities operating in the Kingdom.