Chapter 4: Resolution Procedures
General Provisions
Article 10
1. The SIFI must fulfil the following conditions for any resolution procedure:
a) The SIFI suffers or is likely to suffer a crisis that would threaten its existence and its ability to fulfil its obligations.
b) The SIFI experiences difficulty in fulfilling its obligations within an appropriate time, which threatens its existence if resolution procedures are not invoked.
c) The resolution procedures would achieve any of the objectives of the Law.
d) The resolution procedures would be a better alternative to dissolution of the SIFI.
2. For the purpose of implementing this Article, a crisis threatening the SIFI’s existence and ability to fulfil its obligations shall include:
a) Lack of financial and administrative resources necessary to ensure financial adequacy, cash flow, risk management, or the management of the institution, and achieve the standing obligations under the license that, if not available, would justify its revocation.
b) The value of assets falls below the value of liabilities or is likely to fall in the near future.
c) Inability or expected inability to settle its debts upon maturity.
d) Need for exceptional government support.
Article 11
1. The SIFI shall notify the competent authority when it faces or expects to face a crisis.
2. Without prejudice to the support agreements between members of a financial group, the SIFI may not be granted support from any other member of its financial group if the SIFI is likely to face a crisis, except in the following cases:
a) The support received by the SIFI would prevent the crisis.
b) The support does not adversely affect the status of the supporting member or the financial group as a whole.
c) Obtaining the approval of the competent authority supervising the financial institution providing support.
d) The support provided to the financial institution is in the form of loans or loan guarantees, or assets to be used as collateral.
e) The decision to provide support is taken by the management of the institution providing support and the management of the SIFI receiving the support.
f) The support is provided in accordance with an agreement approved by voting shareholders of the institution providing support.
Article 12
1. Prior to deciding to impose resolution procedures on a SIFI, the competent authority shall conduct a preliminary assessment, either by itself or through an accredited valuer.
2. In the absence of any risk to the stability of the financial sector due to the SIFI experiencing a crisis, the competent authority may request the relevant agencies to initiate bankruptcy procedures.
3. If the competent authority decides to impose resolution procedures on the SIFI, it shall first assess the value of its assets and liabilities through an accredited valuer. If it is not possible to appoint a valuer within an appropriate time, the assessment shall be carried out by the competent authority.
4. The assessment referred to in paragraph (3) of this Article aims to:
a) ensure the existence of conditions for initiating the resolution procedures stipulated in Article 10 of this Law;
b) determine suitable resolution procedures;
c) identify capital instruments and debts to be reduced, terminated, or transformed for the amendment of rights; and
d) identify assets, liabilities, and capital instruments to be sold, and determine their value in case of sale of the SIFI or transitional entity.
5. The competent authority shall, in cooperation with the Saudi Authority for Accredited Valuers, issue rules for the assessments referred to in paragraphs (1) and (3) of this Article and Article 22(3) of this Law.
Article 13
1. The competent authority may take one or more of the following procedures on any SIFI and its holding company or a subsidiary financial institution upon the existence of all conditions referred to in Article 10 of this Law:
a) Sale of the SIFI.
b) Establishment of a transitional entity.
c) Separation of SIFI assets.
d) Amendment of rights of the SIFI.
2. The competent authority may take resolution measures on the holding company or a subsidiary financial institution which does not qualify for resolution in cases where this is necessary to complete the resolution of the SIFI.
Article 14
1. If the competent authority decides to take resolution procedures on a SIFI, it shall first prepare an action plan to be approved by the Governor of the Saudi Central Bank or the Board of the Capital Market Authority, as the case may be, prior to implementing the resolution plan.
2. With the exception of urgent cases, if there is a need for the amendment of the action plan referred to in paragraph (1) of this Article or part thereof, the competent authority must obtain the approval of the Governor of the Saudi Central Bank or the Board of the Capital Market Authority in accordance with the aforementioned paragraph.
3. The competent authority may include in the action plan, referred to in paragraph (1) of this Article, procedures other than those in the resolution plan if it deems that they are consistent with this Law and achieve its objectives.
Article 15
In carrying out resolution procedures, the competent authority shall observe the following principles:
1. The losses incurred by the SIFI under resolution shall be borne by its owners and then by its creditors, taking into account the order of priority of their legal and contractual debts.
2. Accord the creditors of the SIFI subject to resolution a fair treatment to ensure that they will not receive a value less than the value they would receive if the SIFI is dissolved at the start of resolution procedures.
3. Mitigate the potential negative impact arising from resolution procedures on other financial institutions within the financial group or sector.
4. Avoid unnecessary depreciation of assets and reduce the cost of resolution procedures, as possible.
Sale of the SIFI Procedure
Article 16
1. The competent authority may sell all or part of the shares, stocks, assets, or liabilities of the SIFI under resolution, whether the sale occurs in one or multiple stages. The Implementing Regulations shall set the rules governing the sale procedures.
2. The sale referred to in paragraph (1) of this Article does not require the consent of the owners or creditors of the SIFI under resolution, or any other related party apart from the transferee.
3. The sale referred to in paragraph (1) of this Article shall be subject to the following:
a) The transferee shall be the successor of the SIFI under resolution to the extent of what is transferred thereto, and shall exercise all rights related to the transferred assets and liabilities.
b) The owners or creditors of the SIFI under resolution, or any other related party whose shares, stocks, or assets are not transferred, shall not be entitled to any right related to the transferred shares, stocks, assets, or liabilities.
c) The owners shall receive the value of sold capital instruments, while the value of the sold assets and liabilities shall be received by the SIFI under resolution.
4. The transferee must hold the license necessary for engaging in the activity transferred thereto, or be in the final stages of obtaining such license.
Establishment of a Transitional Entity Procedure
Article 17
1. To achieve the objectives of this Law, particularly the continuity of the critical activities of the SIFI under resolution, the competent authority may take the necessary actions to establish a transitional entity to which all or part of the shares, stocks, assets, or liabilities of the SIFI under resolution are transferred, whether in one or multiple stages, provided that the total value of transferred liabilities do not exceed the total value of transferred assets.
2. The transfer referred to in paragraph (1) of this Article shall be subject to Article 16(2) and (3) of this Law.
3. The management of the transitional entity shall exercise due diligence and shall not be liable towards the SIFI under resolution, its owners, or creditors for any errors in the performance of its duties, with the exception of cases of gross negligence, fraud, or deception.
4. The competent authority may include in the Implementing Regulations additional rules to regulate the transfer of stocks, shares, assets, or liabilities to the transitional entity, and regulate the transitional entity’s activities, including the management and governance thereof.
5. The competent authority shall take necessary actions to sell the transitional entity in accordance with the Implementing Regulations.
6. Subject to causes of termination stipulated in the Companies Law, the transitional entity shall terminate in any of the following cases:
a) Merger with another entity.
b) The sale of all or a significant portion of its assets; in which case the termination shall be decided by the competent authority.
c) The lapse of two years from the last transfer by a SIFI of shares, stocks, assets, or liabilities thereto. The competent authority may extend this period, provided that each extension is reasoned and does not exceed one year.
d) Dissolution prior to the expiry of the period stipulated under paragraph (c) of this Article.
Termination of a transitional entity shall entail its liquidation.
Separation of Assets Procedure
Article 18
1. The competent authority may take necessary actions to establish an asset management entity to which assets or liabilities of a SIFI under resolution or a transitional entity are transferred, provided that this procedure is only carried out in conjunction with another resolution procedure.
2. Application of the procedure referred to in paragraph (1) of this Article shall be meant to achieve any of the following:
a) Appreciation of assets to obtain a greater return upon their sale or liquidation.
b) Ensuring the existence of the SIFI under resolution or the transitional entity.
c) Avoiding damage to the market as a result of liquidating such assets.
3. The asset management entity may pay for such assets or liabilities by issuing securities, at the value determined in accordance with Article 12(3) of this Law.
4. The transfer referred to in paragraph (1) of this Article shall be subject to Article 16(2) and (3) of this Law.
5. The management of the asset management entity shall work towards appreciation and sale of transferred assets and liquidation of the entity.
6. The management of the asset management entity shall exercise due diligence and shall not be liable towards the SIFI under resolution, its owners, or creditors for any errors in the performance of its duties, with the exception of cases of gross negligence, fraud, or deception.
7. The competent authority may include in the Implementing Regulations additional rules to regulate the separation of assets and the work of the asset management entity, including management, governance, and liquidation.
Amendment of Rights Procedure
Article 19
1. The competent authority may conduct the amendment of rights procedure on the SIFI under resolution by amending the rights of its creditors and capital instrument holders to the extent that enables the institution to recover its status and fulfill statutory requirements.
2. The competent authority may amend the rights of creditors and capital instrument holders in the SIFI under resolution prior to the sale of any of its shares, stocks, assets, or labilities, or the transfer thereof to the transitional entity, the transferee, or the asset management entity.
3. When converting the debts of the SIFI under resolution to capital instruments, the competent authority shall take into account the priority of the debts in its conversion rates, in accordance with the Implementing Regulations.
4. The holder of the reduced capital instrument shall not be entitled to any amount or compensation, unless the maturity of such amount or compensation occurs prior to the reduction.
5. The Implementing Regulations shall regulate the handling of derivatives to which the SIFI under resolution is party.
Article 20
The competent authority may not amend any of the following rights and liabilities:
1. Deposits, as determined by the competent authority.
2. Insurance policies.
3. Guaranteed liabilities, except where the value of the guarantee exceeds the value of the liability.
4. Client assets and funds, as determined by the competent authority.
5. Consignments.
6. Any liability due in less than seven days, except for liabilities owed to an institution within the same financial group.
7. Any due liability resulting from subscription to settlement systems.
8. Dues of employees of the SIFI under resolution, except for performance bonuses.
9. Liabilities arising from the import of goods and services essential to the daily operations of the SIFI under resolution, including e-services, utility bills, rent, maintenance services, and the like, except for liabilities owed to institutions within the same financial group.
10. Zakat and social security dues.
11. Resolution funds dues.
12. Rights and liabilities which the competent authority considers, when implementing the amendment of rights procedure, important to be excluded entirely or partially from the amendment, to establish financial stability, ensure continuity of the critical activities of the SIFI under resolution, or maintain the value of such liabilities, if the amendment thereof would affect the rights of other creditors more than the exclusion thereof from amendment.
Article 21
1. The SIFI subject to the amendment of rights procedure shall, within 30 days from the conclusion of the procedure, submit to the competent authority an action plan which includes the following:
a) A detailed account of the factors leading to the crisis.
b) A description of the procedures to be taken to achieve recovery in the long term.
c) A timeframe to implement such procedures.
2. The competent authority shall, within 30 days from receipt of the plan, decide whether to approve the plan or notify the SIFI of required amendments. The SIFI shall amend the plan and resubmit the same to the competent authority within 14 days.
3. Semi-annual progress reports on the implementation of the plan shall be submitted by the SIFI or at the request of the competent authority.
4. The competent authority may include in the Implementing Regulations additional rules and provisions governing the preparation of the action plan.