Draft Rules Regarding Bancassurance Activities in KSA
On 5 February 2020, the Saudi Arabian Monetary Agency ('SAMA') released the 'Draft Rules Governing Bancassurance Activities' (the 'Rules') regarding the sale of (undefined) insurance products by banks in the Kingdom of Saudi Arabia ('KSA'). The Rules set standards for the bancassurance industry.
The Rules are subject to the Cooperative Insurance Companies Control Law (the 'Insurance Law'). Non-compliance with the Rules is considered an automatic breach of the Insurance Law for insurers or the Banking Control Law for banks and the failure of either party means that they will suffer the consequences detailed within those law and/or implementing regulations. For example, insurers can receive a fine for up to one million Saudi riyals and/or receive a prison sentence for up to four (4) years under the Insurance Law for breaches of the Insurance Law.
The Rules set out key requirements for carrying out bancassurance activities in KSA. Banks and insurers have to set out the terms of the insurance activity in an agreement, which will be reviewed and approved by SAMA. The intention is to strengthen SAMA's oversight control over the quality of the service provided. The agreement will have to detail which products will be sold by banks on behalf of insurers. Termination of the agreement will have to be approved by SAMA.
Aside from complying with the agreement, banks will be able to sell only the insurance products to its customers and cannot collect the premiums itself. Banks may not issue policies or handle claims on behalf of insurers (save for complying with limited administrative obligations). Insurers will pay banks a commission for selling its insurance products, the amount of which must be disclosed to customers. A bank may not sell banking and insurance products together. An insurer is required to obtain SAMA's approval if it wishes to contract with more than one bank, and a bank may not contract with more than one insurer regarding the same product line.
Banks will be required to abide by rules regarding professional conduct, advertising and marketing rules when interacting with customers regarding bancassurance activities. These include ensuring that banks do not provide advice beyond their knowledge and require banks to understand both the terms of the products they are selling and take into account their customers' needs. There are also very detailed requirements regarding the documentation that must be provided to customers to ensure that they understand the terms they are agreeing.
The vast majority of the Rules are intended to ensure consumer protection. Banks are required also to properly explain to the customer their disclosure requirements and places a duty on banks to guide customers through this process. While banks are prohibited from approving or settling claims, they have to provide customers with a claim form and guide them through the claims process.
The Rules place a burden on banks looking to sell insurance products to do so to the highest standard possible and exposes banks to claims should they mis-sell any insurance products. The burden of compliance is shared between banks and insurers. Insurers are not absolved from liability since the Rules also require them to regularly review banks' practice of bancassurance activities.
The Rules are open to public consultation until 19 February 2020 and SAMA has provided a form on its website to assist in providing feedback regarding the Rules. HFW has extensive experience in dealing with SAMA and is in a position to assist any party which wishes to provide feedback to SAMA.
For further information, please contact the authors of this briefing,
T +971 4 423 0547
T +966 11 834 3516