Saudi Arabia: A crypto sleeping giant is cautiously waking up

Saudi regulators are making moves to cautiously usher crypto into the Kingdom, but it might not be at Saudi's Central Bank

Bloomberg, followed by local press and crypto news outlets everywhere, picked up what appeared to be big news on 5 September: Saudi Central Bank (SAMA) appointed a Crypto Chief, Mohsen AlZahrani, in July. 

AlZahrani is no small name in Saudi's fintech scene; he's a SAMA veteran. His return to the Central Bank in July followed a year-and-a-half stint as Managing Director for Financial Services at Accenture. Prior to Accenture, AlZahrani spent nearly two decades developing a digital payments system under the auspices of SAMA.

In 2005 AlZahrani managed onboarding for the newly-launched, SAMA-founded SADAD Payments System before moving up to BD Director. He went on to direct SAMA’s Innovation Center, leading all blockchain and digital currency projects inside the Bank, before taking over strategy at SAMA-owned Saudi Payments company- an instant payments system and successor of SADAD. 

AlZahrani is clearly a titan in the Saudis' financial sector with a career deeply devoted to developing the digitalization of payments, naturally leading to blockchain-oriented solutions and their power to underpin digital currencies in more recent years. However, reports indicating there's a new office dedicated to crypto might be missing the mark.

Mohsen AlZahrani is undoubtedly a Fintech Chief in the Kingdom - but the notion of a SAMA heavyweight dedicated to crypto could be premature.

AlZahrani's new role at SAMA is Virtual Assets and Central Bank Digital Currency Program (CBDC) Lead. However, AlZahrani's 20 years of fintech experience is rooted in Central Bank-owned, issued, or enabled digital payments from SADAD to CBDC to Saudi Payments, drawing some uncertainty that the position’s virtual assets side of the portfolio will heavily focus on crypto -- given the very decentralized and Central Bank-circumventing nature of crypto currency.

More likely, the Bank’s new program could signal it will double down on the other half of the equation-- developing CBDC at scale, which is an expansive portfolio on its own for the Arab world’s wealthiest nation of 35mn people. 

Adding to the office’s ambiguity, "virtual assets" is still a vague definition in Saudi Arabia until regulators formalize legislation on crypto, CBDC, and other types of virtual assets. The definition of virtual assets typically excludes digital forms of fiat currency (like CBDC) but we won't know unequivocally until KSA takes a formal stance on a virtual asset and crypto regime. 

AlZahrani's coverage of both Virtual Assets and CBDC within the same position could hint that the Kingdom will consider CBDCs as a subcategory of virtual/digital assets-- fitting with his experience and also underscoring the necessity to clearly define and delineate virtual/digital asset classes inside the country.

Within this umbrella of non-crypto virtual assets, SAMA could rein in other already-launched virtual assets under AlZahrani: NFTs. Saudi Arabia launched its first NFT marketplace earlier this year with the support of the Investment Ministry. 

While the custodians of crypto regulation and enforcement vary among advanced economies (as shown in the table below), Saudi Arabia has traditionally followed US-UK financial models, suggesting that a regulatory agency outside of the Central Bank would take the lead. Fittingly, the Chair of the US Securities and Exchange Commission (SEC) just announced on 9 September that companies facilitating crypto transactions should register with their regulatory authority (the SEC). However, a specialized department within a Central Bank could also play a supporting role in overseeing some aspects of interagency and international coordination. 

Regionally, Saudi Arabia is likely to fall in between its neighbors Bahrain and the UAE in regulatory practices. Bahrain followed a cautious, Singaporean model with the Central Bank driving crypto regulations. The UAE has taken a more liberal approach with individual jurisdictions regulating crypto companies per free zone, though the federal regulator, the Securities and Commodities Authority is also expected to step in soon.

Taking both international and regional trends into account, as well as AlZahrani’s decades-long career in SAMA-backed payments - we think it is likely that SAMA's new Virtual Assets and CBDC Department will play a supporting role in crypto, but less likely to spearhead its development and regulations in the Kingdom. The new department appears to be more primed to accelerate Bank-backed assets, like CBDC, which will in turn help develop virtual asset adjacencies like digital wallets and digital ledger infrastructure. 

However, the title of "virtual assets" within a SAMA department, whether denoting a crypto chief or not, does indicate a larger push towards popularizing Web3 ideas as a whole.

Moreover, the oil-rich Kingdom of 35 million people (where 14% of adults already use crypto) has been giving other signs that its regulators will embrace crypto. But, in line with US and UK models, the Capital Markets Authority (most akin to the US SEC and the UAE SCA) is likely to house an eventual Crypto Chief in the Kingdom. 

Reports from inside the Kingdom suggest financial regulators like Capital Market Authority (and SAMA) have slowly been warming up to crypto this past year -- eyeing the UAE’s crypto economy success with murmurs that the country (KSA) will formalize its own position on crypto by year’s end.  

After watching from the sidelines, Saudi Arabia is a sleepy crypto giant ready to wake up, but exchange houses might not find a clear-cut path into the Kingdom through a SAMA-based Crypto Chief quite yet. 

Reach out to Cassidy Lyon for more information on Saudi Arabia's forthcoming regulatory and policy developments in tech.