In reference to the Royal Decree No. (M/51) dated 13/8/1433 H, which includes the promulgation of the Finance Companies Control Law. We inform you of the issuance of the Royal Decree No. (M/272) dated 4/12/1445 H approving the amendment of a number of articles of the Finance Companies Control Law, as follows:

1- Amending the definition of “Finance Company” in Article (1) of the Law, to read as follows: “Finance Company: A company that holds a license to practice financing activity.”

2- Adding a clause numbered (5) to Item (first) of Article (5) of the Law, stating the following: “The company shall take the form of a joint stock company. The Bank may authorize other than the form of joint stock companies if it deems that the proposed business model or the nature of the activity requires it, provided that this does not prejudice the safety of the financial system and the fairness of the transactions.” The current clause (5) should be renumbered as clause (6).

3- Amendment to clauses (1) and (2) of Article (11) of the Law to read as follows:
    “1- Engaging in any activity other than financing without obtaining the Bank's approval.
    2- Owning a facility that engages in an activity other than finance, whether directly or indirectly, without obtaining the Bank's approval.”

4- Amendment to subparagraph (d) of clause (1) of Article 12 of the Law to read as follows “To finance or grant facilities to persons or establishments, if one of the members of the board of directors of the financing company, one of its directors, one of its managers or their equivalents, as the case may be, or one of its external auditors, is a guarantor for obtaining the financing or facilities.”

5- Amendment to clause (2) of Article Twelve of the Law to read as follows “Without prejudice to the public and private rights established by the regulations, any member of the board of directors of the financing company, each director of the financing company, each member of the board of managers of the financing company, or their equivalent - as the case may be - and each external auditor of the financing company, who obtained financing in violation of any of the provisions contained in paragraphs (1 /b), (1 /c) or (1 /d) of this Article, shall be deemed removed as specified by the Regulation.”

Amendment to Article (16) of the Law and its Clauses (1) and (2) to read as follows: "Membership in the Board of Directors of a finance company or its managers or the membership of its board of managers, or their equivalent, requires the following:

1. That the individual is not a member of the board of directors of another finance company engaged in the same activity, nor one of its managers, board members, or equivalent, as appropriate.
2. That the individual does not combine work in supervising finance companies or auditing their accounts with membership in the board of directors of a finance company, nor as one of its managers, board members, or equivalent, as appropriate."

7- Amendment to Article (17) of the Law to read as follows: "Each of the board of directors of the finance company, its managers, board members, or equivalent, as the case may be, the general manager, senior executives, and branch managers are responsible—each within their jurisdiction—for any violation by the company of the provisions of the law or its Regulations."

8- Amendment to Article (18) of the Law to read as follows: "Without prejudice to the provisions in Paragraph (1/a) of Article (12) of the Law, the members of the board of directors of the finance company, its managers, board members, or equivalent, as the case may be, shall bear joint liability for guaranteeing the company’s rights against losses resulting from providing financing without security."

9- Amendment to Article (19) of the Law to read as follows: "Each finance company must establish an audit committee comprising non-executive board members. The tasks of this committee, the rules for selecting its members, the duration of their membership, and its operating procedures shall be determined by a resolution of the company's general assembly based on a proposal from the board of directors."

10- Amendment to Article (20) of the Law to read as follows: "The chairperson, board members, managers, and equivalent personnel of a finance company must disclose in writing the following when conducting any financing contract they have decision-making authority over:

1. Any relationship they have with the contract.
2. Any second-degree relationship of their relatives with the contract.
3. Any financial interest they have with any party related to the contract. The affected party, in the event of non-disclosure, may file a lawsuit with the competent court requesting the annulment of the contract."

11- Amendment to the Title of Chapter (5) of the Law from "Supervising Finance Companies" to "Supervision".

12- Amendment of Article (21) of the Law to read as follows: "With regard to clause (2) of Article (Ten) of the Law, the bank supervises the activities of finance companies, entities engaged in support activities for financing, and companies licensed to register contracts under the provisions of the Finance Lease Law, exercising its powers in accordance with the provisions of the law and its Regulations."

13- Amendment to Article (29) of the Law to read as follows: "If a finance company, an entity engaged in support activities for financing, or a contract registration company commits violations related to professional misconduct or engages in transactions that put its shareholders, partners, or creditors at risk, or if the company’s or entity’s debts exceed its assets, the bank must, by written decision and proportional to the severity of the violation, take one or more of the following actions against the company or entity:

1. Issue a warning.
2. Require it to submit an appropriate program detailing actions it will take to address the violation and rectify the situation.
3. Compel it to cease certain operations or prevent it from distributing profits.
4. Impose the financial penalty specified in Article (34) of the Law, as appropriate.
5. Require it to suspend the offending individual—who is not a board member, manager, or equivalent—temporarily, or compel the company to dismiss them, depending on the severity of the violation.
6. Temporarily suspend the chairman, any board member, manager, or equivalent.
7. Appoint one or more consultants to provide advisory services for managing its operations, at its own expense.
8. Suspend the authority of its board of directors, managers, or equivalent, and appoint a manager at the company’s expense to manage its operations until the reasons necessitating this are resolved, at the bank’s discretion.

If the bank deems that the violation warrants revocation of the license or liquidation of the company or entity, it must file a lawsuit before the competent court. The bank may, in cases it deems necessary, suspend the license until the case is resolved."

14- Addition of a New Article (36- Bis) to the Law, to read as follows: "The bank may exempt one or more finance companies from the application of certain provisions of Chapters (3), (4), and (5) of the Law, taking into account fairness in transactions and the stability of the financial system."

For your information.