The Saudi Central Bank (SAMA) has issued new regulations governing close-out netting agreements and related collateral arrangements for financial institutions under its supervision. These regulations, effective immediately, aim to enhance risk management and provide legal certainty in financial contracts, even during bankruptcy proceedings.
The regulations apply to qualified financial contracts involving at least one SAMA-supervised entity. They enable swift termination, liquidation, and settlement of obligations if a default occurs, thereby reducing potential losses. This process involves consolidating obligations into a single currency, determining a net balance owed between parties, and streamlining risk management.
Specific contracts affected 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. The regulations also clarify liabilities for branches of foreign multibranch entities operating in Saudi Arabia, ensuring financial clarity in cases of local branch bankruptcy.
