Saudi Arabia Vision 2030: Regulatory Sandbox

Saudi Arabia’s Vision 2030 represents a pivotal shift in the kingdom’s economic and social policy, aiming to diversify its economy beyond oil. Central to this vision is the Financial Sector Development Program, a strategic initiative designed to transform the financial sector into a diverse and effective system capable of supporting the development of the national economy. Within this broader framework, the fintech sector has emerged as a key area of focus, driving innovation and efficiency in financial services. Companies offering more traditional financial services may seek authorization from the relevant regulatory body, while fintech startups may benefit from participating in a regulatory Sandbox program.

Guide to Sandbox Application

The Saudi Central Bank (SAMA) and the Capital Market Authority (CMA) have each launched regulatory Sandbox programs to cultivate a dynamic fintech ecosystem. Both programs are open to foreign companies. These initiatives are part of Saudi Arabia's strategic plan to strengthen its fintech sector and grow into a global hub for financial technology. These Sandboxes serve as testing grounds for emerging financial technologies, allowing companies to develop and refine new products and services within a defined regulatory space. The regulatory authority may waive or relax certain requirements or restrictions in the Sandbox program (e.g. capital and liquidity requirements) at its own discretion. The CMA names 38 companies which have received a Sandbox permit since its inception in 2018,[1] and the SAMA lists 16 companies which are currently enrolled in its Sandbox program.[2]

Insight into SAMA's Regulatory Sandbox Framework

The SAMA's Sandbox is primarily focused on banking and payment services. Applicants must meet the following four key eligibility criteria to be accepted into the Sandbox program:

Genuine Innovation & Regulatory Environment;
Benefits Stemming from the Idea;
Minimum Viable Product & Technology Readiness for Testing; and
Exiting Plan.

The companies currently permitted to the SAMA Regulatory Sandbox are categorized into the following activity types:

Open Banking Services
Digital Savings Association (a kind of community savings)
Buy Now Pay Later for Enterprises

CMA's Fintech Lab Explained

The CMA's Fintech Lab specializes in the capital market domain, seeking fintech solutions that can modernize and expand the securities market. Its eligibility criteria for the acceptance into the program are as follows:

Involves securities activities regulated by the CMA;
Promotes fintech innovation;
Potential to promote growth, efficiency, competition, compliance, risk management, or consumer welfare in the capital market; and
Ready for live experimentation.

The CMA currently groups the companies permitted to its Sandbox program into the following activity types:

Equity Crowd Funding
Robo-Advisory
Offering and Investment in Debt Instruments
To use Distributed Ledger Technology (DLT) to Arrange and Offer of Securities and Custody Services
Social Trading
Investment And Real Estate Funds Distribution Platform

Application Tips for Fintech Startups

The application process for either Sandbox starts with a proposal submission to the relevant regulatory authority that must detail the fintech product and its impact on the Saudi Arabian market, as well as the background of the applicant. Fintech Saudi, a partnership between the SAMA and the CMA to promote the fintech industry, has launched a regulatory assessment tool for applicants to determine the relevant regulatory authority.[3] The submission will then be assessed regarding the proposal's alignment with the respective Sandbox's specific focus areas. Depending on the individual business model and background of the applicant, additional requirements may be imposed. Successful applicants are then admitted into the Sandbox environment, where they are monitored and assessed on various metrics, including regulatory compliance, risk management, and consumer protection. The SAMA states for its program a 6-month timeline between the receipt of the application and the start of the testing phase. The CMA‘s Fintech Lab operates on a cohort model, accepting applications for fixed dates only, while the program overseen by the SAMA shifted to an “Always Open approach” in 2022, giving the opportunity to be accepted into the program throughout the year. Applicants to either Sandbox program are not required to have established a local entity at the time of application but must establish one upon approval. The SAMA's Regulatory Sandbox permits a testing phase between six and twelve months, whereas the CMA offers a Fintech Experimental Permit that is valid for up to two years.

Crypto Firms in Saudi Arabia: Shift in Perspective Towards Cryptocurrencies

Historically, Saudi Arabia has maintained a cautious stance towards cryptocurrencies and related financial technologies. This conservatism stemmed from concerns over financial security, consumer protection, and the potential for misuse in illegal activities. However, in line with global trends and the kingdom's broader economic diversification and innovation goals under Vision 2030, there has been a gradual but noticeable shift in this perspective. Recent years have seen Saudi authorities take tentative steps towards acknowledging the potential of blockchain and digital assets. While outright endorsements of cryptocurrencies might not yet be seen (the SAMA Governor just addressed the risks of cryptocurrencies in October 2023)[4], the kingdom seems to be increasingly open to exploring the benefits and possibilities these technologies offer. Saudi Arabia's evolving approach towards digital currencies is highlighted by significant developments such as Project Aber, a joint digital currency project with the Central Bank of the United Arab Emirates, which was announced in 2019, and the establishment of a dedicated head of virtual assets position within the SAMA in 2022.

The Regulatory Environment for Cryptocurrencies

The regulatory environment for virtual asset service providers in Saudi Arabia is currently in an early state of evolution. As the kingdom cautiously opens up to the possibilities offered by cryptocurrencies and blockchain technology, the question of regulatory oversight remains a significant point of discussion. While Fintech Saudi's regulatory assessment tool (see above) currently indicates that Cryptocurrency Trading and Initial Coin Offerings are not permitted in Saudi Arabia, a representative at the CMA stated that this prohibition is not absolute. According to the information we received from the CMA, there is still no definitive clarity whether the SAMA or the CMA will emerge as the primary regulatory authority overseeing virtual asset service providers. Consequently, applications to either Sandbox program are open to virtual asset service providers, but each application is reviewed on a case-by-case basis. We are closely monitoring the evolving roles of the SAMA and the CMA in regulating cryptocurrencies and will share updates as they become available. In the meantime, we would be delighted to answer your questions or assist you in the process of online application if you want to present your project to SAMA or the CMA respectively.

Conclusion: Seizing an Opportunity in Saudi Arabia's Fintech Ecosystem

Saudi Arabia's strategic Vision 2030 and its Fintech Sandbox initiatives are laying a robust foundation for fintech advancements. While the cryptocurrency landscape is still in an early stage, the Sandbox program could provide an opportunity to gain a first mover advantage for early participants in a growing and evolving market.