Fintech Market Overview

This article does not constitute legal advice.

Crowdfunding in Saudi Arabia

Fintech Software

Generally speaking, there have not been any alterations in the laws governing fintech as opposed to conventional financial transactions. Accordingly, all financial transactions are governed by the same laws, whether fintech or conventional.1

Nevertheless, the relevant authorities introduced specific licences for certain fintech activities along with the guidelines for applying to said licences to keep pace with the developments in Saudi Arabia. As such, we list below the options available for fintech companies to enter the Saudi market:

  • alter the business carried out by the company to one that does not require SAMA or CMA licensing;
  • partner with a local entity licensed by the relevant authorities;
  • enter the sandbox programmes offered by SAMA and the CMA that grant temporary or experimental licences;
  • apply for a debt-based crowdfunding licence that is subject to the Finance Companies Control Law;
  • apply for the payment service provider licence that is subject to Finance Companies Control Law and its implementing regulations; or
  • apply for Finance Support activities subject to the Finance Companies Control Law. 1

Fintech companies that carry out activities licensed by SAMA and apply through the sandbox programme will have up to six months, subject to renewal, to practise their activities in the Saudi market. Companies that carry out activities regulated by the CMA and apply through their sandbox programme will be given the opportunity to conduct business for up to two years and they may renew this licence once. Where the activity of an entity falls under debt-based crowdfunding, payment service provider or finance support, then each licence shall be valid for a range of three to five years (as applicable) subject to renewal.1

Where an entity is carrying out debt-based crowdfunding activities, that entity may avoid the sandbox step and apply directly for the debt-based crowdfunding licence as issued by SAMA, which will subject the entity to ensure compliance with the Finance Companies Control Law.1

To obtain this type of licence, applicants must submit:

  1. a licence application;
  2. articles of association (AoA) and by-laws;
  3. a list of founding members or shareholders along with the details of their ownership percentages;
  4. draft agreements to be entered into with third parties;
  5. a business model;
  6. where the entity is under incorporation, a bank guarantee of 5 million riyals issued in favour of SAMA up until the capital is paid up. 1

Additionally, executive positions in the entity should be held by Saudi nationals who are professionally qualified in finance. The minimum capital requirement for establishing an entity licence to carry out debt-based crowdfunding is 5 million riyals subject to increase or decrease at SAMA's discretion on a case-by-case basis. Finally, upon submission, a notice from SAMA is received, and the entity shall attend to any additional information requested by SAMA within 30 days so that SAMA to issue its initial acceptance or rejection within 60 days. Upon receiving SAMA's initial acceptance, applicants will be given a period of six months to provide SAMA with the commercial registration and AoA stating the necessary activities (failure to submit will cause the initial approval to expire). Finally, these licences are valid for five years subject to renewal via a three-month renewal letter to be sent to SAMA.1

Moreover, SAMA and the CMA aim to further regulate fintech in Saudi Arabia as follows. The CMA is the financial regulatory authority responsible for overseeing securities activities and crowdfunding solutions. SAMA, established by two royal decrees, is a regulatory, legislative and judicial body.1

Setting up an asset management company in Saudi Arabia is subject to licensing by the CMA as set out in the latter's Investment Fund Regulations and Authorised Persons Regulations. This means that the entity must satisfy a number of requirements, such as a minimum capital requirement and establishing multiple internal key functions and appointing the required specialised officers, before being able to carry out its activities in Saudi Arabia.2

Collective investment, governed by SAMA, is generally allowed but subject to licensing and minimum capital requirements. Any activity with the purpose of financing is regulated by the Finance Companies Control Law promulgated by Royal Decree No. M/51 dated 13/08/1433 H (corresponding to 02/07/2012 G) (the Finance Companies Law) and its implementing regulations. Because the purpose of collective investment is to finance companies, it will trigger the application of the Finance Companies Law. As per the Finance Companies Law and its implementing regulations, financing activities may not be carried out in Saudi Arabia without obtaining the necessary licences from SAMA, provided that such activities are in compliance with shariah principles. Thus, any entity desiring to manage investments for the purpose of financing other entities will be subject to SAMA licensing requirements.1

To be able to create a portal to regulate collective investments, the entity that is the manager of the investment shall seek to obtain the necessary licence offered by SAMA. Furthermore, because such activity may trigger money laundering risks, being the manager of such an investment may be subject to investigation. As a result of these risks, SAMA is reluctant to allow individuals or entities to collect amounts, fearing that they may be used for wrongful purposes unless they can demonstrate sufficient evidence of how they intend to monitor closely every transaction made. Hence, to obtain the necessary licensing, we advise the entity to consider how to mitigate any money laundering-related risks and communicate these considerations to SAMA.1

While debt-based crowdfunding is now governed by the newly issued laws, the CMA allows for equity-based crowdfunding in Saudi Arabia, subject to regulation by CMA laws and regulations. The entity shall first apply via the CMA's portal to obtain a temporary licence to carry out crowdfunding activities during a trial period. Similar to collective investment, because money collection is a sensitive activity, the entity wishing to crowdfund must provide sufficient evidence of how it intends to monitor closely any money laundering activities that may occur. Upon the entity's acceptance by the CMA and successful completion of the trial period, it may be granted a permanent licence allowing the entity to carry out equity-based crowdfunding activities in Saudi Arabia.1

Similar to collective investment, because peer-to-peer lending falls under financing activities, it shall be governed by SAMA and subject to the Finance Companies Law. For an entity to carry out the activities related to peer-to-peer lending, it shall ensure that its entity is licensed by SAMA and that the activities being conducted are in line with shariah principles.1

Furthermore, where the entity is responsible for managing the amounts, it will be subject to CMA regulations. This is because management activities fall under securities business activities as listed in the Securities Business Regulation issued by the CMA. Thus, because peer-to-peer lending is a financial activity and its management falls under security business activities, such entity will trigger SAMA and CMA licensing requirements. Once all licences are obtained, the entity will be authorised to carry out lending and management activities in Saudi Arabia.1

Banking in Saudi Arabia

Fintech in Saudi Arabia

Fintech in other countries

  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/saudi-arabia
  2. https://cma.org.sa/en/RulesRegulations/Regulations/Documents/IFRs%20Regulations-%20Final%20English.pdf
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