Rules Governing Disposal of Finance Assets or Their Contractual Rights
No: 605580000099 Date(g): 12/6/2019 | Date(h): 9/10/1440 Status: In-Force These rules were issued by Circular No. (361000145658) dated 18/11/1436H corresponding to 01/09/2015G, and amended in accordance with the Rules Governing Disposal of Finance Assets or Their Contractual Rights No. (99/60558), dated 09/10/1440H, corresponding to 12/06/2019G.Based on the powers vested to SAMA under the relevant laws, regulations and instructions, and the powers vested to SAMA under the Banking Control Law issued by Royal Decree No. (M/5) dated 22/02/1386 H, and the Finance Companies Control Law issued by Royal Decree No. (M/51) dated 13/08/1433H, and Article Sixty-Seven of the Implementing Regulations of the Finance Companies Control Law, and SAMA Circular No. (361000145658) dated 18/11/1436 H containing Rules Governing Disposal of Finance Assets or Their Contractual Rights.
Please find attached the updated version of the "Rules Governing Disposal of Finance Assets and their Contractual Rights".
To take note and abide by it as of its date.
Introduction
These Rules shall apply to banks and finance companies licensed and authorized by SAMA. SAMA is the sole authority empowered to apply these Rules and to take necessary measures, as it deems appropriate regarding any violations of these rules, including imposing punitive charges or enforcement actions as applicable under the Banking Control Law promulgated by Royal Decree No. M/5 dated 22/02/1386H and Finance Companies Control Law promulgated by Royal Decree No. M/51 dated 13/08/1433H. SAMA may update these Rules as and when required.
These Rules have been issued in both Arabic and English. In the event of discrepancy in the interpretation of the two texts, the Arabic text shall prevail.
Chapter One Definitions
- The following terms and phrases, wherever used in these Rules, shall have the meanings assigned thereto unless the context requires otherwise:
Central Bank: Saudi Central Bank*.
Finance entity: Any bank or finance company licensed by SAMA.
Disposal: Encompasses sale of finance assets, or factoring.
First party: A finance entity that intends to dispose its finance assets or their contractual rights.
Second party: An entity that possess finance assets or their contractual rights after being disposed by the first party.
Sale of assets: Transfer of the ownership of finance assets or their contractual rights to the second party.
Factoring: Sale of the rights of finance contracts to the second party, where the ownership of finance assets remains with the first party.
Recourse: Disposal arrangement whereby the first party bears the credit risk of the disposed finance assets or their contractual rights, including default risk.
Partial recourse: Disposal arrangement whereby the first party bears part of the credit risk of the disposed finance assets or their contractual rights, including default risk.
Without recourse: Disposal arrangement whereby the second party bears the credit risk of the disposed finance assets or their contractual rights, including default risk.
Disposal forms: The disposal can be either with recourse, partial recourse, or without recourse.
Finance assets portfolio: A pool of finance assets or their contractual rights, which are intended to be disposed by the finance entity.
* The Saudi Arabian Monetary Agency was replaced by the name of Saudi Central Bank in accordance with The Saudi Central Bank Law No. (M/36), dated 11/04/1442H, corresponding 26/11/2020G.
Chapter Two General Provisions
- These Rules shall apply to all finance entities.
- These Rules govern the disposal of finance assets or their contractual rights, whether the disposal takes the form of sale of asset or factoring.
- SAMA may decline or restrict transactions of disposal of finance assets or their contractual rights based on reasons deemed relevant by SAMA, such as experience, technical capabilities, or risk level.
- SAMA may exempt certain transactions of disposal of finance assets or their contractual rights from certain provisions of these rules when it deems that their nature or volume warrant such exemption.
Chapter Three Requirements for Disposal of Finance Assets or Their Contractual Rights
6. The finance entity shall be in operation for at least two years prior to disposing its finance assets or their contractual rights. 7. The finance entity that intends to dispose finance assets or their contractual rights, shall comply with the following: 7-1 If the assets, which are intended to be disposed, are real-estate assets, there need to be a lapse of at least six months from the date of extending credit related to the assets to be disposed of, or six months from the date of first paid instalment, whichever comes later. 7-2 If the assets, which are intended to be disposed, are other than real-estate assets with contract maturity not exceeding five years, there need to be lapse of at least three months from the date of extending credit related to the assets to be disposed of, or three months from the date of the first paid instalment, whichever comes later. 7-3 If the assets, which are intended to be disposed, are other than real-estate assets with contract maturity exceeding five years, there need to be lapse of at least six months from the date of extending credit related to the assets to be disposed of, or six months from the date of first paid instalment, whichever comes later. Chapter Four Procedures for Disposal of Finance Assets or Their Contractual Rights
8. The finance entity that wishes for disposal of finance assets or their contractual rights must apply for SAMA's no-objection attached with the following: 8-1 Disposal of finance assets portfolio or their contractual rights template (appendix 1). 8-2 Overdue Instalments of finance assets portfolio template (appendix 2). 8-3 A historical record of the last (5) disposed finance assets portfolios or their contractual rights, if available (appendix 3). 8-4 A copy of the proposed contracts and agreements between first and second party. The contract shall contain all necessary information including but not limited to the following: A. Details of the underlying parties in the contract. B. Type of the disposal of finance assets or their contractual rights. C. Forms of the disposal of finance assets or their contractual rights and guarantees thereto. D. Expected date of the contract. E. Type of the finance assets portfolio. F. Gross and net value of the finance assets portfolio. 9. The finance entity can provide the second party - when it deems necessary - with data and information regarding the finance assets portfolio that intended to be disposed. 10. The finance entity, which intends to dispose finance assets or their contractual rights, shall apply for SAMA's no-objection, with all the documents, templates and records as specified in these Rules, at least (15) business days prior to the expected date of the disposal. 11. The finance entity must provide SAMA with a copy of all concluded contracts and agreements regarding the disposal within five business days of their conclusion. Chapter Five Effectiveness
- These Rules shall be effective from the date of their issuance.
Appendices