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Redefining BNPL: How SAMA's Regulations Are Shaping Saudi Arabia's FinTech Sector

The Saudi Central Bank (SAMA) has issued a decisive set of regulations to govern the burgeoning Buy Now, Pay Later (BNPL) sector in Saudi Arabia, marking a new era of legal oversight for this dynamic financial service.

Legal Framework and BNPL Rise
The global BNPL market, valued at $309.2 billion in 2023, while latest figures from Saudi Arabia show that the total gross merchandise value of goods sold with the Buy Now Pay Later (BNPL) service amounted to $2.3 billion in 2022 and is expected to surge dramatically. This growth trajectory is exemplified by the recent achievements of regional BNPL players like Tabby and Tamara. This trend has called for a structured legal approach. SAMA's response is a comprehensive regulatory framework that caters to this evolving market.

SAMA's Regulations – A Legal Examination

The Regulations issued by SAMA based on its power in keeping with the Finance Companies Control Law issued by Royal Decree No. M/51 dated 3 July 2012. It encompasses stringent licensing requirements for BNPL companies, internal organization mandates, activity provisions, and compliance directives. Key provisions included:

 - Capital Mandates: A minimum capital requirement of SAR 5 million signifying a commitment to sustainable business practices.

 - Operational Mandates: 50% Saudization rate in human resources in all departments reflecting a focus on local employment.

 - Information Security and AML/CTF Compliance: Emphasis on robust internal policies to safeguard consumer data and prevent financial crimes.

 - SAMA’s Oversight: Highlighting the role of SAMA in ensuring compliance through inspections and periodic reviews.

Consumer Protection and Market Stability
Central to these Regulations is the emphasis on consumer protection and market stability. SAMA outlines detailed provisions for consumer due diligence, advertising requirements, and conflict of interest policies:

 - Credit Limitations: The Regulations set clear boundaries for credit, limiting the maximum outstanding financing for individual consumers.

 - Fee Restrictions: The Regulations also restricts fees and consumer charges.

 - Advertising Norms: Guidelines to ensure transparency and consumer awareness in BNPL advertising.

 - Conflict of Interest: Policies must address potential conflicts of interest, promoting fair treatment of consumers.

 - Empowering Consumers: Prioritizing consumer rights with transparent contractual terms and fair credit assessments.

Adapting to Regulatory Expectations
BNPL companies and newcomers must align their operations with the Regulations, adapting credit limits and ensuring compliance with information security standards, and integrating anti-financial crime measures.

Vision 2030 and Beyond
These regulations resonate with Saudi Arabia's Vision 2030, highlighting the Kingdom's commitment to fostering a responsible and inclusive FinTech ecosystem. SAMA's forward-looking approach is likely to set a benchmark for other regions.

The implementation of these regulations marks an essential moment in Saudi Arabia’s financial sector. By fostering a balanced ecosystem that prioritizes both innovation and consumer protection, SAMA's regulatory framework is set to redefine the BNPL landscape, aligning with the ambitious goals of Vision 2030. 

This article was written by corporate lawyer Jean Abboud and focuses on BNPL in Saudi Arabia. 

BSA is a regional Law Firm in the Middle East with offices in the UAE, Oman and Saudi Arabia. As a full-service law firm our practice areas include litigation, arbitration and corporate services, including M&A, banking & finance, Intellectual Property, TMT, Fintech, employment and insurance.

Published on 18 December, 2023.

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