The Saudi Central Bank’s new Close-out Netting Regulation enhances the enforceability of financial agreements for transactions amid defaults, aiming to reduce credit risk. This regulation facilitates cross-border business in Saudi Arabia by providing confidence in netting agreements, thereby supporting the Nation’s Vision 2030 objectives for stronger global investment stature.
A recent conference held in Riyadh, Saudi Arabia, on February 19, raised excitement due to the launch of a new regulatory framework by the Saudi Central Bank (SAMA). The collaboration involved the International Swaps and Derivatives Association (ISDA), the International Securities Lending Association (ISLA), and the International Capital Market Association (ICMA), which is noteworthy as they represent parties engaged in derivatives and securities lending transactions.
SAMA introduced the Close-out Netting and Related Financial Collateral Regulation on February 17, establishing the enforceability of netting agreements in the event of transaction failures among SAMA-supervised entities. The regulation aims to reduce credit risk exposure and enhance financial stability by ensuring that contractual arrangements related to netting are upheld in both bankruptcy and non-bankruptcy contexts.
This regulation significantly impacts cross-border transactions and business operations within Saudi Arabia. By simplifying the settlement process between defaulting and non-defaulting parties, financial institutions can proceed with transactions more confidently, knowing their netting agreements are legally validated even during defaults.
To support this framework, the involved associations plan to publish legal opinions reinforcing the enforceability of close-out netting provisions in their agreements on a cross-border basis. These opinions, annually published globally, are vital for firms seeking to mitigate credit risk and potentially lower their regulatory capital requirements.
This regulatory development aligns with the goals of Saudi’s Vision 2030, enhancing the nation’s stature as a global investment hub. The enthusiasm at the conference reflects confidence in the mechanisms supporting this financial evolution, marking another pivotal step towards Saudi Arabia’s broader economic objectives.
The introduction of the Close-out Netting and Related Financial Collateral Regulation by SAMA is a crucial development for the Saudi financial market. It provides legal assurance to financial institutions and encourages cross-border transactions. The planned publication of legal opinions further facilitates the enforceability of these agreements, reinforcing the Kingdom’s Vision 2030 strategy towards becoming a leading global investment destination.
Original Source: natlawreview.com
