Saudi Gazette report

RIYADH — The Saudi Central Bank (SAMA) announced the issuance of the Close-out Netting and Related Collateral Arrangements Regulations, applicable to all financial institutions under its supervision in Saudi Arabia, effective immediately from its publication date.

These regulations govern netting agreements and financial collateral arrangements in connection with qualified financial contracts involving at least one party supervised by SAMA in situations including bankruptcy proceedings.

Under the new regulations, financial institutions can swiftly terminate, liquidate, and settle obligations if one party defaults, minimizing potential losses.

The netting process involves calculating obligations into a single currency and determining a net balance owed between parties, thereby streamlining risk management.

Specific qualified financial contracts affected by these regulations include currency and interest rate swaps, commodity swaps, forward rate agreements, credit derivatives, securities repurchase agreements, commodities contracts, and Shariah-compliant financial contracts such as murabaha.

For branches of foreign multibranch entities operating in Saudi Arabia, obligations under multibranch netting agreements are clearly defined, limiting liabilities and ensuring financial clarity in cases of local branch bankruptcy.

Moreover, the regulations explicitly protect netting agreements and collateral arrangements from interference or suspension by bankruptcy trustees or the Bankruptcy Commission, thereby reinforcing legal certainty.

This regulatory step aligns with SAMA’s ongoing efforts to foster a robust financial environment and bolster Saudi Arabia’s standing as an attractive financial hub.