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Saudi Central Bank Introduces Two Documents Aimed at Regulating Crowdfunding Platforms and Activity in the Kingdom

The Saudi Central Bank (SAMA) introduced two official documents in December 2020 aimed at regulating Crowdfunding platforms and activity in the Kingdom. The documents include Rules for Engaging in Debt-Based Crowdfunding and Licensing Requirements for Crowd Lending Activity, which became effective in December. The documents were introduced under the Finance Companies Control Law and the Rules for Engaging in Crowd Lending, which stipulate the licensing provisions for Crowdlending activity.

SAMA, under the law and licensing rules, defines Debt-Based Crowdfunding as “raising funds from finance Participants through a digital Platform to be granted to an Institutional Beneficiary in accordance with a loan contract”; a Debt-Based Crowdfunding Company (the Company) as “a joint-stock company licensed to engage in Debt-Based Crowdfunding activity through a digital Platform”; an Institutional Beneficiary as “a micro, small or medium-sized enterprise registered in the Kingdom of Saudi Arabia that seeks to obtain financing through a Debt-Based Crowdfunding Platform” and Debt-Based Crowdfunding Platform as “a web-based platform or any other digital means, including websites and mobile applications, used and run by a Debt-Based Crowdfunding Company to carry out Debt-Based Crowdfunding.”

According to SAMA, eligible participants comprise a natural or legal person who has assets with a net value of at least SAR 3,000,000 (three million Saudi riyals); currently working or has worked for at least three years in the financial sector in a position related to finance or investment; has a professional certificate in finance or investment approved by an internationally recognized establishment; and has as an annual income of at least SAR 600,000 (six hundred thousand Saudi riyals) in the past two years.

The Rules apply to companies licensed by SAMA to engage in Debt-Based Crowdfunding activity. It is illegal for persons and entities not licenced by SAMA to engage in Debt-Based Crowdfunding activity.

The objective of these Rules, says SAMA, is to establish licensing procedures and requirements for Debt-Based Crowdfunding activity in the Kingdom and to set the minimum standards and procedures for Debt-Based Crowdfunding Companies.

Under the provisions of the Companies Law, the minimum capital for the Debt-Based Crowdfunding Company is set at SAR5,000,000 (five million Saudi riyals).

“Taking into consideration the associated risks and their nature, SAMA may increase or decrease the minimum capital based on the prevailing market conditions or if it deems that the Debt-Based Crowdfunding Company’s proposed business model or the nature of its activity requires so,” added the central bank.

The Rules are very specific and robust in pre-empting financial crime and boosting cybersecurity of the entire process. The Debt-Based Crowdfunding Company is required to comply with the information security requirements and the relevant laws, regulations and instructions issued by SAMA.

According to SAMA, “the Debt-Based Crowdfunding Company shall comply with the legal requirements mentioned in the Anti-Money Laundering Law, Combating Terrorism Crimes and their Financing Law, their Implementing Regulations, and the relevant rules and guidelines as specified by SAMA, in a manner that is consistent with the nature and size of the Company’s activity and risks it may be exposed to. The Debt-Based Crowdfunding Company shall also comply with the requirements and instructions issued by SAMA on financial crimes and fraud.”

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