The digital asset sector is experiencing a surge in popularity across the globe, with Gulf nations witnessing a rise in adoption and transaction volume. Market researchers have conducted studies and concluded that cryptocurrency has gained significant traction in Saudi Arabia in recent years. Notably, within the Kingdom, 76% of cryptocurrency investors are fairly recent participants, with less than a year of experience in the field.

The growing interest in conducting transactions with virtual assets necessitates the development and implementation of a clear regulatory framework in the region. The publication discusses the imminent changes in cryptocurrency regulation in Saudi Arabia.

Regulation of the crypto-asset market in the GCC countries

Regulating digital assets in the countries of the Persian Gulf exhibits distinctions. Some states have already formulated and implemented cryptocurrency regulations, while others remain profoundly cautious towards virtual assets. For instance, Bahrain was the pioneering nation among the Persian Gulf states to establish a regulatory framework concerning cryptocurrencies. The Kingdom of Bahrain's 2019 directive stipulates that obtaining a crypto license from the country's Central Bank is imperative for engaging in lawful activities involving virtual assets.

In 2020, the Securities and Commodities Authority (SCA) of the UAE issued corresponding regulations aimed at regulating cryptocurrencies in the United Arab Emirates. The regulations apply to all cryptocurrency exchanges, trading platforms, crowdfunding platforms, intermediaries offering cryptocurrency custody services. Such business entities must be registered with the SCA and are required to obtain a license for cryptocurrency exchange, as well as strictly adhere to AML/CTF policies, comply with cybersecurity standards, and develop internal data protection policies for their clients. In turn, there are countries that have enacted a complete ban on cryptocurrency operations. One example is Qatar, where only operations involving security tokens are permitted.

Fintech regulation in Saudi Arabia

Fintech regulation in the Kingdom of Saudi Arabia falls under the competence of such bodies as:

In this country, Fintech Saudi was established as a demonstration of the government's commitment to advancing contemporary technologies. Fintech Saudi was created to support the growth and adoption of innovations in the fintech sector in Saudi Arabia, ensuring conducive conditions for both local and foreign investors interested in launching a fintech startup.

Over the past year, SAMA and CMA regulators have achieved significant milestones in the development of regulations aimed at governing and licensing fintech companies in Saudi Arabia, establishing progressive fintech sandboxes, thereby fostering the growth and prosperity of the sector. The fintech industry in the Kingdom of Saudi Arabia has experienced substantial growth in recent years, with the emergence of numerous new players seeking expansion in the region. This has also been facilitated by the establishment of Saudi Payments, SADAD* (find out more of its elaboration and implementation here and here) and the launch of Apple Pay, leading to an increase in the volume of payment transactions.

* SADAD is a new Electronic Bill Payment service, established by SAMA with the objective of establishing a trusted and quick centralized Bill Payment system. SADAD operates in partnership with local Banks and Billers.

Launching a fintech startup in 2024: fintech trends in Saudi Arabia

The Kingdom of Saudi Arabia stands as the largest economy in the Middle East. The government exhibits a steadfast commitment to a progressive approach in regulating the cryptocurrency market within Saudi Arabia. However, displacing the UAE from its position as the regional crypto hub seems unlikely for this nation. The Emirates remain a jurisdiction dedicated to crypto-innovations and are the first to endeavor their integration into the regulatory framework.

The major trends in the FinTech industry in Saudi Arabia are briefly explained below.

  • Digital payments.

Saudi Arabia markets itself as a developed nation to draw in consumers of electronic payment systems. In 2020, SAMA released the Rules for Payment Service Providers (PSP) as part of its mandate and efforts to accomplish the objectives of the financial sector growth. It is important to note that the EU Payment Services Directive serves as the foundation for a few of the PSP Rules' clauses. The PSP Rules are intended to license non-bank financial entities, such payment firms, and regulate payment services in Saudi Arabia.

In Vision 2030, the government has announced its intention to escalate the volume of non-cash transactions to 70% by 2025. Such ambitious initiatives necessitate a corresponding response from the industry. Specifically, banks in this jurisdiction are advocating for the transition from conventional payment solutions to non-cash payments. The sector is actively striving to adapt to emerging payment technologies.

In light of the country's transition to new digital payment solutions, e-commerce business in Saudi Arabia already commands a significant share of this burgeoning market. It is anticipated that by 2025, the value of the Kingdom of Saudi Arabia's e-commerce market will exceed $13.2 billion USD. Another testament to this nation's readiness for the integration of innovative fintech solutions into everyday operations is the proliferation of mobile wallets.

  • Digital banking.

In the country, there is observable advancement in the realm of digital banking licensing. Notably, STC Bank and Saudi Digital Bank have emerged as the inaugural licensed digital banking entities. As of yet, specific regulations tailored for overseeing digital banking within the Kingdom have not been established, thus placing this sector under the purview of conventional banking statutes (Banking Control Law overseen by SAMA). Particularly, to furnish such services, procuring a banking license is requisite, albeit with the stipulation that services will be dispensed in a digital format.

  • Crowdfunding.

Secured finance, also known as crowdfunding, has been another area of adaptation within the nation. In 2021, the regulatory body, SAMA, implemented a new framework governing the control of debt-based crowdfunding. These regulations stipulate that crowdfunding operations within Saudi Arabia can only be undertaken after securing a license from SAMA. The licensing process is rather intricate, encompassing the preparation and submission of a comprehensive documentation package and adherence to minimum capital benchmarks. There are also specific qualifications mandated for individuals nominated for leadership roles within the applicant company.

  • Blockchain.

The Saudi Vision 2030 initiative encompasses elucidating the imperative for allocating funds into state-of-the-art technologies like IoT, artificial intelligence, intelligent urban centers, and blockchain, thus expediting the nation's digital evolution. SAMA aspires to position the Kingdom of Saudi Arabia as a pivotal player in the financial technology industry regionally, while also advancing the nation on a global scale. For Saudi Arabia, blockchain plays a crucial role in digital transformation. The government has clarified that property rights and data provenance are key areas where operations will be enhanced through the utilization of blockchain technology.

  • Open banking.

SAMA is working tirelessly to maintain the financial stability and economic expansion of the Kingdom. Thus, as part of the Financial Sector Development Program (FSDP), the nation has started an Open Banking initiative. Through the use of fintech, Open Banking allows customers of financial institutions to safely share their financial information with outside companies that provide cutting-edge financial services and goods. The nation's central bank introduced the idea of open banking services in 2022 and opened an Open Banking Service Laboratory in early 2023 as part of its promotion of Open Banking activities.

Crypto regulation in Saudi Arabia

The central bank of the Kingdom has announced the launch of a program for virtual assets and central bank digital currency. These initiatives signal a transformation in the government's vision and the advancement of a new approach to regulating virtual currencies in Saudi Arabia. It is important recalling that in 2018, the Ministry of Finance issued a document stating that banks are prohibited from processing any transactions involving cryptocurrencies. This was due to the absence of specific regulation of the crypto asset market in Saudi Arabia and the non-compliance with Sharia principles.

In its recent statements, the government has expressed commitment to the transformation of the cryptocurrency sector, authorizing operations with certain cryptocurrencies developed by SAMA. One such cryptocurrency is Aber, slated for utilization in transactions between the UAE and the Kingdom of Saudi Arabia. SAMA's endeavors are anticipated to yield expedited and transparent international transactions. This legislative transformation has been spurred by the success, as previously noted, of the UAE. Licenses for cryptocurrency exchange in the Emirates have been granted to numerous global exchanges. Consequently, Dubai and Abu Dhabi are positioning themselves as global crypto hubs. This further catalyzes growing interest among regulators in Saudi Arabia toward advancing the crypto landscape in the country.

Conclusion

Since neighboring countries to Saudi Arabia are adopting a progressive approach to regulating virtual asset markets, it is quite likely that the Kingdom will follow suit. In their current efforts to develop fintech in Saudi Arabia, both SAMA and CMA are offering programs that provide experimental licenses to fintech companies developing innovative business solutions. Traditional licenses for certain types of activities in the fintech industry are also available in this country.

You can obtain further information on the regulation of cryptocurrency activities in Saudi Arabia or other Gulf countries from specialists at our company. Additionally, our services include providing assistance in launching crypto startups.