Published: Oct 5, 2023

Saudi Central Bank (SAMA) issues draft Netting and related Collateral Arrangements Regulation

In a much-awaited development the Saudi Central Bank (“SAMA“) has issued its draft netting and related collateral arrangements regulations (“Netting Regulations”) to banks in the Kingdom of Saudi Arabia (“KSA“) for comments. Banks in KSA have submitted their comments to SAMA and the final version of the Netting Regulations are expected to be issued soon. The Netting Regulations will be issued by SAMA pursuant to its powers under Article 4 of The Saudi Central Bank Law issued by Royal Decree No (M/36) dated 11/04/1442H and Articles 229 and 214 of the Bankruptcy Law issued by Royal Decree No. (M/50) dated 28/05/1439H.

Under the Bankruptcy Law, once bankruptcy proceedings have commenced, it may not be possible to set-off or net the relevant obligations across different and unrelated transactions. However, Article 214 of the Bankruptcy Law, states that with a view to maintaining the financial order and stability, arrangements relating to guarantees and set-off involving “financial transactions” are excluded from the Bankruptcy Law. The implementing regulations of the Bankruptcy Law stipulate that the “financial transactions” to be excluded from the Bankruptcy Law are to be determined by SAMA, together with the Capital Markets Authority and the Ministry of Commerce and Investment. The draft Netting Regulations now permits netting once bankruptcy procedures have commenced and broadly aligns to ISDA’s model netting law.

Some of the salient features of the draft Netting Regulations are as follows:

  • The Netting Regulation applies to ‘Qualified Financial Contracts’ where at least one party is regulated by SAMA.
  • ‘Netting’ covers a situation where, in respect of transactions under a master agreement, the occurrence of an event of default leads to (among others) termination, liquidation, and/or acceleration or payment and delivery obligations, calculation of close out value and determination of net balance of the values in respect of the transactions so that only one party has to pay an amount equal to the net balance to the other party (practically, this is similar to set off in respect of the transactions under the master agreement).
  • Qualified Financial Contracts are defined in Annex 1 to the Netting Regulations – these contracts broadly cover most traditional derivative transactions.
  • The provisions of the netting agreement will be enforceable and may not be stayed or avoided as a result of any actions of a bankruptcy trustee or the commencement of bankruptcy proceedings.
  • Multi-branch netting agreements are also addressed.

How can we help?

Al Tamimi & Company is well-equipped to assist with the recent developments regarding the Saudi Netting Regulations. To access our expertise and guidance, please don’t hesitate to reach out to our dedicated team below.

Key Contacts

Rafiq Jaffer

Partner, Banking & Finance (Bahrain, KSA & UAE) Head – Debt Capital Markets