Recent legal and regulatory changes in Saudi Arabia are dragging down the path of the domestic financial market, according to a new report from Moody’s ratings.
The credit agency said the country’s first transaction marks an important step in creating financial markets supported by transparent legal foundations.
Transactions, reinvested securities (Rmbs) are supported by loans that are compatible with sharing, which is prominently driven by recent legislative changes.
Moody’s noted that the Civil Treatment Law (CTL) of 2023 strengthened the tightening of asset transfers, while the Capital Market Authority’s (CRMA) new rules for special purpose securities (SPES) improved predictability tolerance.
The report said that while these changes created a virtual security environment, many of the legal provisions “remain inaccessible to Saudi courts”. It also pointed out that Saudi law, which is based on Shariah law, takes a view on legal guidance in conflict situations, which can lead to different interpretations between judges.
Legal Reforms Boost Saudi Financial Market
Under Saudi law, lenders are allowed to assign contractual claims, with the CTL allowing creditors to transfer their rights to third parties without being restricted by the terms or terms of the loan. In order to qualify as “real real” and assert against the founding creditors, the creditors must agree or be notified of the transfer, as required by Article 240.
Moody’s said that the borrower’s notice should be required, which would create practical challenges for the founders who want to introduce themselves to the lenders during the transfer of assets.
The report added that certain sector laws, such as the Real Estate Finance Law and Regulation (Regulation) While the Refrr allows for loan allocations, it remains unclear whether the Saudi courts will interpret this as CTL notification requirements.
Moody’s also highlighted Saudi Arabia’s law, which allows creditors to challenge certain pre-bankruptcy transactions within 12 to 24 months. Although what is meant by “unfair transactions” is not precisely defined, the legal risks associated with them are comparable to those in additional security markets.
The CMA’s draft SPES adds procedural protections by requiring regulatory approval before bankruptcy proceedings can be instituted against a licensed entity. According to Moody’s, this measure reduces the probability of default. The report said illegal appeals and limited regeburse restrictions, which limit credit and protect issuers, are likely to apply in Saudi courts.
“Although the recent changes in the law in Saudi Arabia and the respect of the judicial system for the arrangement of the contract give back to security,” said Moody. “Given the absence of a fully charged organization of Sharia formation, interpretations vary widely among judges and cases.”
