Regulations Governing the Operation of Agent Banking Activities in the Kingdom of Saudi Arabia

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In the Name of Allah, the Most Gracious, the Most Merciful Saudi Central Bank (SAMA) Head Office

Banking Policies Department
Ref: 37541/67
Date: 15/06/1440 AH
Attachments: 16 pages

Circular

Dear Sirs,
Peace, mercy, and blessings of Allah be upon you, Subject: Regulations Governing the Operation of Agent Banking Activities.

I refer to paragraph three of Article 10 of the Banking Control System issued by Royal Decree No. M/5 dated 22/2/1386 AH. And based on the authorities empowering the Bank to apply the provisions of the Banking Control System pursuant to the decision of His Excellency the Minister of Finance No. 2149/3 dated 14/10/1406 AH.

Enclosed are the Regulations Governing the Operation of Agent Banking Activities, which include the regulatory framework and minimum requirements for providing banking services and products through agents on behalf of banks, with the aim of enhancing financial inclusion in the Kingdom and expanding the reach of banking services.

For your information, review, and implementation effective from the date of publication on the Bank’s website.
Yours sincerely,

Fahd bin Ibrahim Al-Shathry
Deputy Governor for Supervision

Distribution List:

• Banks and financial institutions operating in the Kingdom.
  P.O. Box 2992, Riyadh 11169, Telegram: MARKAZI, Telex: 404400, Tel: 4633000, Fax: 4662414

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Regulations Governing the Operation of Agent Banking Activities in the Kingdom of Saudi Arabia

February 2019

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Table of Contents

• Part One: Definitions and General Provisions .................................................................... 4
• Article One: Definitions ........................................................................................ 4
• Article Two: Purpose and Scope of Application ....................................................................... 4
• Article Three: Responsibility ........................................................................................ 5
• Part Two: Application to Operate Agent Banking Activities ........................................................ 5
• Article Four: Application Submission Requirements ........................................................................ 5
• Article Five: Application to Contract with an Agent for Agent Banking Activities ............................. 6
• Article Six: Commencement of Activities ................................................................. 6
• Part Three: Agent Banking Contract ......................................................................... 6
• Article Seven: Main Requirements ............................................................................ 6
• Article Eight: The Contract ............................................................................................. 6
• Article Nine: Agent Eligibility ................................................................................. 8
• Article Ten: Renewal of Agent Banking Contract .............................................................. 8
• Article Eleven: Termination of Agent Banking Contract .......................................................... 8
• Article Twelve: Record Keeping ........................................................................... 9
• Article Thirteen: Suitability Assessment ............................................................................ 9
• Article Fourteen: Due Diligence towards Agents .......................................................... 9
• Article Fifteen: Due Diligence towards Customers ........................................................ 10
• Part Four: Agent Banking Operations .................................................................... 10
• Article Sixteen: Bank Obligations and Responsibilities ......................................................... 10
• Article Seventeen: Cash Handling .......................................................................... 11
• Article Eighteen: Training of Bank Agents' Staff .......................................................... 11
• Article Nineteen: Permitted Activities ................................................................. 11
• Article Twenty: Prohibitions ................................................................................... 12
• Article Twenty-One: Transfer of Agent's Workplace, Ownership Transfer, or Closure .......................... 13
• Article Twenty-Two: Transaction Settlement ................................................................... 13
• Article Twenty-Three: Information Technology and Operational Requirements ......................................... 13
• Part Five: Customer Protection ................................................................................ 14
• Article Twenty-Four: Customer Protection Requirements .......................................................... 14
• Part Six: Supervision of Bank Agents .................................................................. 15
• Article Twenty-Five: Main Inspection and Supervision Procedures ......................................... 15
• Article Twenty-Six: Desk Audit ................................................................. 15
• Article Twenty-Seven: Field Inspection ................................................................. 15
• Article Twenty-Eight: Random Inspection ................................................................. 15
• Part Seven: Agent Registration ................................................................................. 16
• Article Twenty-Nine: Agent Register ..................................................................... 16
• Article Thirty: Annual Reporting ......................................................................... 16
• Article Thirty-One: Timely and Accurate Reporting ........................................... 16
• Part Nine: Violations ........................................................................................ 16
• Article Thirty-Two: Procedures and Penalties ............................................................... 16
• Part Ten: Enforcement ............................................................................................. 16
• Article Thirty-Three: Enforcement ................................................................................. 16

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Saudi Central Bank (SAMA)
Regulations Governing the Operation of Agent Banking Activities in the Kingdom of Saudi Arabia

Part One: Definitions and General Provisions These Regulations were issued pursuant to the authorities vested in the Bank under the following systems:
a. Saudi Central Bank System, issued by Royal Decree No. (23) dated 23/05/1377 AH. b. Banking Control System, issued by Royal Decree No. (M/5) dated 22/02/1386 AH.

Compliance with these Regulations is mandatory without prejudice to the systems, regulations, and related directives issued by the Bank, including the following:

• Banking Control System and its issued directives.
• Anti-Money Laundering System and its Executive Regulations.
• Combating Terrorism Financing System and its Executive Regulations.
• Directives on outsourcing tasks to third parties, and controls on outsourcing tasks to third parties for branches of foreign banks operating in the Kingdom.
• Anti-Money Laundering and Combating Terrorism Financing Rules for banks, currency exchange offices, and branches of foreign banks in the Kingdom of Saudi Arabia.

Article One: Definitions
The following words and expressions, wherever they appear in these Regulations, shall have the meanings indicated opposite each of them, unless the context dictates otherwise:
The Institution: Saudi Central Bank (SAMA).
The Bank: Any bank licensed to conduct banking business in the Kingdom in accordance with the provisions of the Banking Control System.
The Regulations: Regulations Governing the Operation of Agent Banking Activities.
Agent / Agents: A legal entity contracted with a licensed commercial bank, and approved by the Institution to conduct agent banking activities.
Agent Banking: Providing banking services or products on behalf of the Bank in accordance with the provisions of these Regulations.
Know Your Customer (KYC): The necessary procedures taken by the Agent to identify and verify the identity of customers and beneficiaries.
Conflict of Interest: Achieving a material or moral interest that conflicts with official duties.
Exclusive Agent: An agent bound by an agency contract with a single bank to provide banking services or products on behalf of the contracting bank exclusively.
Non-Exclusive Agent: An agent bound by a non-exclusive agency contract with a bank, or bound by multiple agency contracts with multiple banks to provide banking services on their behalf. Customer: Any natural or legal person who receives or is offered banking services or products.

Article Two: Purpose and Scope of Application 1- These Regulations aim to achieve the following:
a. Expand the reach of banking services and enhance financial inclusion for community members who do not interact with banks and who do not enjoy sufficient banking services and products, while maintaining the security, stability, and safety of the banking sector. b. Encourage banks to engage with agents when providing banking services to limit service costs and support the breadth, depth, and growth of financial inclusion.
c. Establish a regulatory and supervisory framework for agent banking activities that enables the provision of banking services while ensuring full compliance with the provisions of the Banking Control System, its implementation rules, and the Institution's directives.
d. Set minimum standards and requirements for bank agents to regulate their operations. e. Define the activities that bank agents are permitted to conduct after obtaining the Institution's no-objection. f. Provide minimum standards related to data and network security, customer protection, and risk management that must be adhered to when conducting agent banking activities. 2- These Regulations apply to banks when they wish to contract with agents.

Article Three: Responsibility
1- The responsibility for ensuring compliance with these Regulations rests with the Board of Directors of each bank, and the bank alone bears the responsibility for selecting agents. The relationship between the bank and its agent is a direct relationship governed by contracts without prejudice to the provisions of these Regulations. 2- The bank bears responsibility for all actions or negligence by its agents within the scope of providing permitted banking products and services on behalf of the bank. 3- The Board of Directors of each bank must adopt policies and procedures that ensure the following:
a. Selection and identification of reliable agents. b. Identification, documentation, and mitigation of risks associated with agent banking, and ensuring the development and application of appropriate and suitable risk management policies that do not conflict with what is issued by the Institution in this regard.
c. Continuous supervision of agent banking activities conducted by agents to ensure compliance with the provisions of these Regulations, systems, and related rules.
d. Establishing all necessary controls and verifying compliance to ensure that the contracted agent adheres to all regulatory and supervisory requirements, including anti-money laundering, combating terrorism financing, fraud prevention, financial embezzlement prevention, and information security requirements.

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Part Two: Application to Operate Agent Banking Activities

Article Four: Application Submission Requirements

1. Banks wishing to contract with agents must submit an application for the Institution's no-objection in accordance with these Regulations as follows:
   a. A one-time application for no-objection for the bank to benefit from agent banking activities. b. An application submitted before contracting with each potential agent individually, under an "exclusive agent" or "non-exclusive agent" contract for agent banking purposes, according to requirements specified by the Institution.
   c. Applications mentioned in paragraphs (1/a) and (1/b) of this Article may be submitted simultaneously. However, the application mentioned in paragraph (1/b) may not be submitted unless the bank has previously obtained the no-objection mentioned in paragraph (1/a).
2. When submitting the application mentioned in paragraph (1/a) of this Article, the bank must attach the following:
   a. Board of Directors' approval and its undertaking to ensure compliance with these Regulations and any related issuances by the Institution. b. The bank's internal policy regarding agent banking activities, which must include procedures related to agent selection, management, supervision, operations, compliance, conduct, service quality, and performance monitoring.
   c. A copy of the bank's branch expansion plan.
   d. Existence of bank infrastructure supporting agent banking activities, including the technical systems and tools to be used. e. The bank's qualification standards for contracting with agents, such as:

• Coverage scope.
• Competence.
• Integrity.
• Security safety.
• Availability of appropriate technical infrastructure.
  f. Permitted services that can be provided according to the bank's arrangements regarding exclusive or non-exclusive agents. g. Template of the agent banking contract. h. Customer due diligence, including "Know Your Customer" procedures and compliance with anti-money laundering and combating terrorism financing systems and directives.
  i. Information security and confidentiality protection procedures.
  j. Risk assessment report, including risk management, internal controls, and operational policies and procedures. k. Customer protection procedures, including strategies for financial awareness and education related to agent banking activities.
  l. Controls and supervision procedures to ensure compliance with related systems, regulations, directives, and regulatory requirements.
  m. Business continuity plan and emergency arrangements to ensure the continuity of services provided through bank agents in case of interruption. n. Any other policies, procedures, or requirements the Institution deems related to managing agent banking activities.

Article Five: Application to Contract with an Agent for Agent Banking Activities

1. A bank may deal with a master agent to manage its banking agents, provided that this agent meets all agent banking suitability requirements specified in Article (Thirteen) while retaining full existing responsibility for the agency relationship.
2. The agent company's commercial register must permit the conduct of agent banking activities.
3. The agent must obtain necessary approvals from the competent supervisory and regulatory authority before the bank submits the no-objection application for contracting with it.
4. A bank may assign its subordinate employees to conduct or supervise work at the agent's premises. In the event of an agreement between the bank and its agent under the agent banking contract to assign the agent's employees to perform agency work, the provisions of Article (Nineteen) must be observed.
5. The bank must submit a statement signed by its Chief Executive Officer or a senior official with authority, confirming that the bank has conducted a suitability assessment for the proposed agent, that it has met the minimum qualification requirements stipulated in these Regulations, and that it possesses the competence to manage agent banking activities on behalf of the contracting bank.
6. The Institution will, after reviewing complete applications in accordance with these Regulations, notify the bank of the application result.

Article Six: Commencement of Activities
The Institution's no-objection to contract with an agent shall be void if the agent does not commence its activities within nine months from the date of issuance of the Institution's no-objection, and the Institution may extend this period at its discretion.

Part Three: Agent Banking Contract

Article Seven: Main Requirements a- The bank must, after obtaining the Institution's no-objection, conclude a written, fixed-term contract with the agent to provide any of the services for which the Institution's no-objection was issued. b- The agent banking contract must clearly define the rights and obligations of both parties in a manner that does not conflict with these Regulations, and must be signed by the concerned parties before the agent begins providing agent banking services.

Article Eight: The Contract
The agent banking contract must stipulate, as a minimum, the following:
1. Appointment of another party as an agent for the bank to provide clear and specifically scoped banking services.
2. The status and nationality of each party, and that they have the authority or authorization to contract in this regard.
3. The agent's personal information and information about its commercial activity, including working hours, and any other necessary information.
4. A detailed description of the services provided by the agent, subject to the provisions of Article (Twenty) of these Regulations.
5. The agent's responsibilities, including, as a minimum, the following:
a. Dealing professionally and courteously with customers, including refraining from any prohibited activities under these Regulations. b. Conducting customer due diligence procedures when conducting transactions, including:
1. Specifying a mechanism for the customer to authenticate transactions executed through the agent.
2. Providing a screen device of appropriate size for the customer to review transaction data and verify its accuracy.
c. Implementing customer protection measures through:
1. Providing proof of transactions to customers.
2. Facilitating the transfer of customer complaints to the contracting bank.
3. Disclosing mandatory information as specified in the Institution's regulations, directives, and customer protection principles.
d. Complying with all systems, directives, and the bank's internal policies, including the bank's ethical conduct principles and code of conduct. e. Exercising due diligence regarding the technical systems and devices specific to agent banking. f. Retaining records, documents, vouchers, and transaction proofs for a period of no less than ten years, and providing these records to the bank regularly and at predetermined intervals, so the bank can ensure their preservation to facilitate supervision, oversight, and verification by the bank as specified in Article (Twenty-Seven) of these Regulations. g. Reporting requirements necessary to enable the bank to effectively monitor the agent's performance on a monthly basis, and to report events that may materially affect the efficiency of service delivery. h. Granting the contracting bank access upon receipt of a notice to conduct an inspection or field audit and conduct inquiries at the agent's workplace, and cooperating when the bank requests information from the agent as specified in Article (Twenty-Nine) of these Regulations.
i. A description of activities prohibited for the agent to conduct on behalf of the bank, as stated in Article (Twenty) of these Regulations.
j. Maintaining customer information confidentiality and not disclosing any information obtained during the performance of assigned tasks. k. Not violating regulatory and supervisory requirements.
6. Dispute resolution and compensation mechanisms, including disputes between customers and the agent, and disputes between the agent and the bank, including cases where the agent's breach causes harm to the bank. This includes exploring other compensation methods, settlement procedures and durations, compensation amounts, and the obligations of concerned parties in the event of a dispute.
7. How the agent banking contract is terminated or expires, which may include breach of a contractual obligation or a provision of these Regulations.
8. Procedures to mitigate risks associated with agent banking services.
9. Compliance with anti-money laundering and combating terrorism financing requirements and the "Know Your Customer" principle, including providing the Institution with all requests and periodic reports related to anti-money laundering and combating terrorism financing from the bank.
10. Acknowledgment that the bank owns all information or data obtained by the agent regarding agent banking services, whether from customers, the bank, or other sources, and that this information must be kept confidential and access to customer information must not be granted to any unauthorized third party. This shall also apply after the termination of the agent banking contract.
11. Amendment of contract provisions regarding default and termination, with a transitional clause regarding the rights and obligations of parties upon termination or suspension of the agent banking contract.
12. Reference that these banking services are subject to regulatory review and that the Institution must be granted full authority at any time to inspect, request information, data, documents, access internal systems, and review agent and bank record reports, and to allow it to interview agent employees.
13. The Institution's authority to revoke or suspend the no-objection as deemed appropriate, as specified in these Regulations.
14. The agent shall not assume administrative tasks, make administrative decisions, or act or appear in a capacity that resembles that of a member of the bank's management or its employees.
15. Any other terms or provisions the bank or agent deems necessary to add, without prejudice to the provisions of systems, regulations, rules, and directives issued by the Institution.

Article Nine: Agent Eligibility

1. The agent must be licensed to conduct and practice its commercial activity, and this must be prior to the date the bank submits the no-objection application to become a banking agent.
2. The following entities are eligible for appointment as an agent under these Regulations:
   a. Companies, excluding commercial banks and finance companies, provided this does not conflict with the Companies System. b. Post offices.
   c. Small and medium-sized enterprises as retail store chains and their branches.
   d. Mobile network operators' agents. e. Foreign companies licensed by the Ministry of Investment. f. Any other entities specified by the Institution.
3. The entity must not have been classified as a distressed borrower by any bank during the twelve (12) months preceding the contract signing date (this information is obtained from a licensed credit bureau), and the agent must maintain this status throughout the duration of the agent banking contract.
4. Suitable infrastructure and appropriate human resources must be available to provide the required agent banking services.

Article Ten: Renewal of Agent Banking Contract Banks wishing to continue the agent banking contract must renew their contracts with their agents, whether exclusive or non-exclusive, at least one month prior to the expiry date of the agent's banking contract, following a comprehensive assessment of outsourcing risks.

Article Eleven: Termination of Agent Banking Contract

1. The Institution may revoke or suspend the license granted to the bank to conduct agent banking activities in any of the following cases:
   a. Breach of any provision of these Regulations that may warrant termination of the agent banking contract at the Institution's or contracting bank's discretion. b. When the contracting bank provides incorrect or inaccurate information under these Regulations.
2. Subject to the contract's termination provisions, the bank must terminate the agency contract in the following cases:
   a. The agent is convicted of a criminal offense involving fraud, forgery, or any other form of financial misconduct. b. The agent is dissolved or liquidated, if it is a legal entity, pursuant to a court order or otherwise.
   c. The agent dies or suffers mental disability, if the entity is a sole proprietorship.
   d. Transfer of ownership of the banking agent, change of its location, or closure without obtaining prior written consent from the contracting bank. e. The agent continues its agent banking activity after its core commercial activity has ceased. f. The agent incurs financial losses or damages to the extent that the contracting bank deems it impossible for the agent to restore its financial safety within three months from the date of the loss or damage. g. The agent fails to maintain its legal license to conduct commercial activity or renew it.
3. In the event of a dispute between the bank and its agent: Both parties must make every effort to settle the dispute within ten (10) working days from the occurrence of the dispute. If the dispute is not resolved within this period and litigation is desired, the bank must begin preparing for agency cancellation within the timeframes mentioned in these Regulations before the litigation stage.
4. Upon termination of the agent banking contract, the bank must publish a termination notice in the area where the agent conducted its business or adopt any other method, such as SMS, to ensure that area residents are informed of the cessation of the agent banking contract.
5. In the event of termination of the agent banking contract, the bank is not permitted to contract with the terminated banking agent under a changed trade name.

Article Twelve: Record Keeping
Agents must retain all records and documents related to bank customers for a period of no less than ten years, and the bank must update the retention mechanism and transfer them to its custody.

Article Thirteen: Suitability Assessment
1- Banks must conduct a "suitability assessment" before initiating contracting arrangements with a third party for agency purposes to ensure that the agent, its owners, and individuals involved in managing agent banking activities are sufficiently competent, suitable, and qualified, and that administrative structures and funding sources are appropriate. The main requirements in the suitability assessment must include, as a minimum, the following:
a. The ethical, commercial, and professional suitability of entities proposed for appointment as agents. b. Negative information obtained from credit bureaus or other sources.
c. Criminal record, particularly regarding terrorism financing, money laundering, fraud, or integrity.
d. Business or practical experience. e. Funding sources necessary to finance the establishment and operation of agent banking activities. f. Any other information that may negatively or positively affect the proposed agent. 2- Any agent, its owners, partners, officials, or any other individual who has been audited and approved by the Institution during the past twelve (12) months may be exempted from the audit conducted under these Regulations.

Article Fourteen: Due Diligence towards Agents

1. Banks must establish clear policies regarding due diligence towards agents, which must include, as a minimum, methods for identifying agents, initial due diligence, periodic verification processes to be executed at specified intervals, and a checklist for early warning signals and corrective procedures to ensure proactive management of agent affairs.
2. Banks must clearly define the roles and responsibilities of administrative units/departments related to agent management within the bank's due diligence procedures towards agents.
3. Banks must ensure the existence of appropriate supervisory procedures to combat money laundering, terrorism financing, fraud, and financial embezzlement regarding agent banking. Agents must be informed of the necessary procedures to be taken in this regard, and their compliance must be monitored periodically.
4. The due diligence framework must include, as a minimum, the following:
   a. Verification of the agent's legal status. b. Verification of the address and locations of all proposed agents.
   c. Proof of absence of conflict of interest between the bank and the agent.
   d. Verification of the suitability of potential agents' resources for conducting agent banking activities, including financial matters and infrastructure (specifically including information security, its technology, and personnel). e. The agent's trustworthiness and the likelihood of good conduct prevailing. f. The agent's credit record with a licensed credit bureau. g. The bank's approval of the agent's procedures to ensure compliance with security risk procedures. h. Any other frameworks the bank deems necessary to achieve this.

Article Fifteen: Due Diligence towards Customers 1- Each bank providing services through agents must design a customer due diligence program tailored to its circumstances, the type of agents, and the level of risk. The customer due diligence program must include, as a minimum, policies related to the following:
a. The Know Your Customer principle. b. Information security.
c. Data privacy and confidentiality.
2- The bank must ensure its agents comply with the customer due diligence program and its requirements stipulated in these Regulations.
3- Agents must verify their customers' identities as specified by the bank, including (via ID, fingerprint, and otherwise), and the purpose and nature of their banking activities or any banking relationship they establish. 4- The agent must, in case there are grounds to suspect the cu