Arab Finance: The Financial Regulatory Authority (FRA) has issued its first comprehensive guide to the rules governing consumer finance companies, consolidating the sector’s legislative and regulatory requirements into a single reference, as per a statement.
The guide is intended to help existing and prospective companies, as well as professionals working in the sector, understand their obligations and comply more consistently with FRA requirements. Its publication follows continued growth in consumer finance, an increase in service providers, greater product and financing-method diversity, and the introduction of numerous regulatory decisions, instructions, and circulars in recent years.
The guide is based on Consumer Finance Law No. 18 of 2020, implementing decisions issued by the FRA’s board and chairman, and applicable circulars. It brings together the requirements governing company establishment, licensing, and operations in an accessible format.
Its coverage begins with incorporation and licensing procedures, capital requirements, and shareholder structures. It also addresses corporate governance, board composition, key management functions and board committees, internal controls, financial solvency standards, financial statements, financing contract templates, and branch registration.
Consumer-facing requirements cover marketing, advertising, and disclosure. Companies must clearly provide repayment schedules, cost and expense statements, and information about the benefits and risks associated with financing.
The guide also regulates customer guarantees and prohibits companies from using blank signed documents or promissory notes as financing collateral.
Anti-money laundering and counterterrorist financing requirements include customer due diligence, reporting suspicious transactions, and retaining records and documents. The guide also covers reporting customer information to credit bureaus to improve financing decisions and credit-risk management.
When evaluating financing applications, companies must assess customers’ creditworthiness, review their existing obligations, monitor delinquent accounts, and verify that financing is used for its intended purpose. The guide encourages the use of digital credit-assessment systems incorporating repayment capacity and customers’ financial positions.
The framework incorporates Basel III-related solvency requirements covering capital adequacy, leverage, liquidity, provisioning, concentration risk, stress testing, and periodic reporting. These rules are intended to strengthen companies’ ability to meet their obligations, manage credit, operational, and liquidity risks, and maintain sound financial positions.
The guide also details digital transformation and cybersecurity requirements. Licensed companies must maintain the technological infrastructure and information systems needed to operate, establish frameworks for information technology governance, risk management, and cybersecurity, and conduct periodic penetration testing. Compliance with these requirements is a condition for retaining a license.
The framework also covers debt collection. The rules require establishing a register for collection companies operating across non-banking financial activities and set controls intended to strengthen market oversight and protect customers.
Regulated companies must inform customers about the collection firms they contract, explain how to verify collectors’ identities, and provide official communication channels. They must also monitor complaints against collection companies and take corrective action when required.
Consumer finance companies are also required to provide customers aged up to 65 with insurance against death and total and permanent disability. Coverage must equal the outstanding financing balance owed by the customer.
The guide further includes rules governing advance cash financing and mechanisms for identifying and addressing the cash liquidation of consumer finance. It also provides organized lists of violations and the administrative and supervisory measures the FRA may take under the law.
FRA Acting Chairman Islam Azzam said consolidating the regulations would make companies’ obligations clearer and improve consistency in applying the rules across the market. He identified consumer protection and market stability as central to the sector’s development and its contribution to the national economy.
FRA oversight covers the full relationship between a company and its customers, beginning with advertising, marketing, and disclosure of financing costs and terms. It continues through creditworthiness assessments, contract execution, financing management, repayment monitoring, and customer-data protection.
Furthermore, the framework is intended to ensure that customers receive the information needed to make informed financial decisions and to limit practices that could harm their interests or impose unclear obligations. The FRA will continue monitoring compliance and taking supervisory and corrective action against violations.
FRA Assistant Chairman Rehab Taha said the guide would provide companies with a practical tool for reviewing their internal frameworks and procedures and identifying the regulatory requirements applying to each part of their operations.
The FRA said it will continue updating the regulatory framework for non-banking finance in response to changing business models, market developments, and emerging risks, while maintaining safeguards for sound practices and strengthening public awareness of customers’ legal rights.
