Subsequently, Royal Decree-Law 22/2018 was enacted, providing us with additional tools such as the sectoral countercyclical capital buffer, and limits on credit standards and on the sectoral concentration of credit exposures. Still pending is the publication of the circular implementing these new tools, although we hope to release it for consultation by mid-2021. The main characteristic of these new tools is that they will allow targeted action. The application of a system-wide capital buffer affects the credit underwriting indiscriminately, i.e. it does not alter the incentives across the different credit segments. Sectoral tools help to dis-incentivise what is considered problematic, meaning that they may be more appropriate for correcting specific imbalances. 3  The CCyB contributes to smoothing the general oscillations of the credit cycle, increasing credit institutions’ capacity to withstand potential future losses. It is also posited as a suitable instrument for mitigating a potential credit constraint in crisis situations. Anyone who has read the Banco de España’s quarterly press releases will know that, as at the date the health crisis broke, we had not activated this buffer; accordingly, unlike other jurisdictions, it has not been possible to release the buffer to alleviate a potential credit constraint. Of course, it has not been activated because, before the outbreak of the health crisis, the imbalances indicators had not warranted such a decision. As is known, the benchmark indicator used internationally for the activation of the CCyB is the so-called “credit-to-GDP gap”, although other leading indicators of systemic crises are also monitored.

The circular is aimed at ensuring that directors and senior managers have sound reputation and are persons of integrity and honesty. Furthermore, over the past two decades, SAMA has issued additional governance related regulations and guidance to banks operating in Saudi Arabia. These include circulars on Internal Controls; Know Your Customers rules, Anti-Money Laundering and Combating Terrorism Financing and Prevention of Fraud. Also, there are specific regulations on the Role of the External Auditors and on the Internal Audit function. SAMA also requires the Board of Directors to establish a specialized Compliance Function that monitors the compliance of the organization with regulations and standards, and has a reporting line to the Board or one of its committees. Moreover, SAMA requires all banks to apply the International Financial Reporting Standards, and that two firms of external auditors are to conduct an annual audit. Furthermore, SAMA has required banks in Saudi Arabia to meet the corporate governance guidance emanating from the Basle Committee on Banking Supervision and more recently from the Islamic Financial Services Board. In this regard, I should mention that SAMA is participating in the IFSB Technical Committee and in various working groups that are developing standards of corporate governance for Shari'ah compliant financial institutions. The leadership role played by SAMA, over the past decades, in promulgating corporate governance standards and in promoting a governance culture has been reflected in the emergence of strong financial institutions and a credible banking system.