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29/04/2012 06:36 AST
The International Monetary Fund (IMF) has advised the Saudi government that the country’s Banking Control Law (BCL) needs urgent updating to include new provisions to give the Saudi Arabian Monetary Agency (SAMA) greater operational independence.
The Fund, in its latest Financial Sector Assessment Program (FSAP) Update on Saudi Arabia published late April 2012, which largely concentrates on whether SAMA is in compliance with the Basel Core Principles For Effective Banking Supervision, stressed that "the (Saudi Arabian banking) legal framework is old. The BCL has hardly been changed since enactment in 1966. It should be updated, especially as it provides for much less formal independence and authority for SAMA than is exercised in practice."
According to the IMF, the Saudi authorities are resisting any suggestions to changing the BCL because "there would be more risk than benefits in amending it."
In its official response to the FSAP, which was conducted at the request of the Saudi government, Riyadh maintained that while the authorities are broadly in agreement with the overall findings, they have reservations on certain aspects of the assessment.
The assessment has rightly acknowledged that Saudi Arabia confronted the global financial crisis from a position of strength and that there have been significant improvements in banking regulation and supervision since the 2004 FSAP. However, according to Riyadh, "the assessment has somehow not fully reflected several actions taken by Saudi Arabia to strengthen the supervisory framework. The authorities were expecting the assessment to focus more on qualitative aspects of Saudi Arabia’s regulatory and supervisory framework, keeping in view the local and regional context and taking into account the ground realities."
The Saudi authorities also believe that the existing BCL is serving its purpose well and provides the necessary legal framework for implementing international standards and for taking all the required supervisory actions. For example, in exercise of powers under this law, SAMA has already implemented Basel-II /Basel-III and all other relevant international standards.
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