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Saudi Central BankSaudi Central BankNewsStatement of the Central Bank of Saudi Arabia regarding the issuance of the Systematically Important Financial Institutions (SIFIs) Treatment System
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Statement of the Central Bank of Saudi Arabia regarding the issuance of the Systematically Important Financial Institutions (SIFIs) Treatment System
12/7/2020 12:15 PM

His Excellency Dr. Ahmed bin Abdul Karim Al-Kholifey, Governor of the Saudi Central Bank, extended his thanks and gratitude to the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud and His Royal Highness Prince Muhammad bin Salman Al Saud, Crown Prince, Deputy Prime Minister and Minister of Defense - may Allah protect them - for the kind approval To approve the Significant Financial Institutions Treatment System; Pointing out that this approval comes from the leadership's keenness to preserve national gains, achieve the public good, and keep pace with international best practices, which enables the Saudi Central Bank to effectively supervise and control important financial institutions in a manner that ensures the preservation of monetary and financial stability, and the protection of the financial system from Any negative effects, in line with the recommendations of the G20 and the Financial Stability Board.

 Al-Kholifey explained that the Central Bank had, from an early date, conducted a comprehensive study of the regulatory framework for treating important financial institutions, studied and analyzed the best practices and relevant international principles, and reached a regulatory framework that is most consistent to the local environment and the national economy.

  The system for treating significant institutions is according to its name is of an exceptional nature in terms of the applicability of its provisions to specific entities and cases, and its provision of special tools to ensure the achievement of its objectives. In other words, the financial institutions subject to the supervision of the Central Bank are not classified as "important" in accordance with the decision of the Central Bank of Saudi Arabia, as the Central Bank will set special standards for those subject establishments in accordance with the relevant regulations taking into account the size of the establishment, its complexity, its interconnectedness, and the risks associated with it.

 The system aims to enable the central bank to take action in order to maintain the safety and stability of the financial sector, protect depositors' funds, clients' assets and insurance policy holders, in addition to ensuring the continuation of the necessary activities of financial institutions, in order to reduce dependence on government support. The system also includes special provisions that require the facilities covered by its provisions to prepare a "restoration" plan, which are those procedures and steps that the important establishment will take to restore its position in the event of default or its possibility. Whereas, the Central Bank prepares a "treatment plan" that includes the measures that will be taken when the facility is subjected to treatment - in accordance with the provisions of the system - for the purpose of achieving the aforementioned goals. Whereas the provisions of the system grant the competent authorities exceptional powers for taking the treatment measures.

The system included the necessity for the Council of Economic and Development Affairs to approve the treatment plan before the concerned party starts implementing it.

 The Adoption of such specialized system in order to addresses troubled "significant" financial institutions or those that are likely to default became a necessity following the global financial crisis in 2008. This crisis prompted the Group of Twenty (G20) to issue its recommendations to the Financial Stability Board to review and analyze the causes of the crisis and to confirm the importance of the existence and development of laws that enable regulatory agencies to intervene quickly and effectively to avoid the occurrence of crises affecting the stability of the financial system. Consequently, the Financial Stability Board issued the "Key Attributes for Effective Resolution Regimes for Financial Institutions" which were classified by the G20 at the "Cannes-France" summit in 2011 as new international characteristics for important financial institutions treatment frameworks.

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