Article 12 of the Saudi Finance Companies Control Law

This article places restrictions on how finance is granted to prevent conflicts of interest and protect the company's funds. In the first paragraph a finance company is prohibited from:

• (a) providing finance without security; as an exception, the Regulations set the rules for finance without security.
• (b) financing or granting facilities against its own shares.
• (c) financing an establishment or company in which one of its board members or external auditors is a partner or manager, other than a joint-stock company listed on the Saudi financial market.
• (d) financing where one of the board members or external auditors is a guarantor for obtaining it.
• (e) financing board members or managers or their spouses or relatives to the second degree, except under the security the Regulations specify.
• (f) financing one of its staff or guaranteeing a financial obligation for him in excess of his salaries for the period the Regulations specify.
• (g) owning shares in another finance company except after SAMA's approval.
• (h) and (i) financing a company or establishment in which the finance company owns, or which owns in the finance company, directly or indirectly, a percentage exceeding what the Regulations specify.

In the second paragraph, every board member or external auditor who obtained finance in breach of paragraphs (1/b), (1/c) or (1/d) is considered removed as the Regulations specify, without prejudice to the public and private rights established by the laws.

It is preceded by Article 11, which prohibits non-finance activities, and followed by Article 13, which requires the company to set aside a provision for potential operating losses.

Because many details are referred to the Regulations, it is advisable to consult a lawyer who specializes in banking and finance when evaluating any finance transaction with related parties.