New endowment regulations: Prohibiting non-residents from serving as trustees and requiring financial disclosure

In a decisive regulatory step aimed at governing the non-profit sector and protecting endowment assets, the General Authority for Endowments issued a set of binding regulatory standards focused on identifying the “beneficiary” of endowments. These measures are part of a comprehensive strategy to enhance financial transparency in the endowment sector and safeguard it against any potential risks related to money laundering or terrorist financing, in line with the legislative developments taking place in the Kingdom of Saudi Arabia.

A regulatory framework that aligns with the Kingdom's Vision 2030

These decisions are particularly important given the significant developments in the third sector (the non-profit sector) within the framework of the Kingdom's Vision 2030, which aims to increase this sector's contribution to the GDP. To achieve this, regulatory bodies are working to close any loopholes that could be exploited in financial transactions, making the governance of endowments (waqf) an urgent necessity to ensure the sustainability of their developmental and social impact. These new standards represent a qualitative leap in oversight mechanisms, shifting endowment management from traditional administration to an institutional framework based on full disclosure and transparency.

Restricting oversight to residents: The rule of law and oversight

Among the most prominent provisions of the new regulations is the absolute prohibition of non-Saudi individuals permanently residing outside the Kingdom from managing Saudi endowments. The authority stipulated that oversight be restricted to trustees residing within the Kingdom only. This condition is intended to ensure:

• The ability to directly monitor and effectively supervise by the competent authorities.
• Ensuring full compliance with local regulations and facilitating legal accountability procedures when needed.
• The speed of response to the regulatory and financial requirements imposed by the Authority.

Compliance with international standards (FATF)

The Board of Directors of the Authority adopted these standards to achieve full compliance with the requirements of the Financial Action Task Force (FATF), specifically the recommendations related to transparency and legal arrangements. This alignment with international standards aims to enhance the Kingdom's standing in global financial transparency indices and ensure the precise identification of the true beneficiary of endowment assets, thus preventing any attempts to exploit endowment entities as a front for illicit financial activities.

Definition of beneficial owner and disclosure records

The new regulations define a “beneficial beneficiary” as any natural person who owns or exercises effective and ultimate control over the endowment, whether it be the endower himself, the trustee, or any person with the authority to make binding decisions. In this context, the standards require endowment trustees to create accurate and up-to-date records that include:

• Full name, nationality, date and place of birth.
• Residence address and national identity or residence number.
• Detailed bank statements through which the proceeds of the endowment are transferred.

The supervisor must also, if the beneficial owner is a legal entity, disclose the chain of ownership and control back to the natural person who exercises actual control.

Strict commitments and legal accountability

To ensure the effective implementation of the regulations, the Authority mandated that trustees update their records within 15 days of any changes, with annual verification of the accuracy of the information required. The standards also emphasized the need for trustees to retain all records, documents, and financial data for a minimum of ten years and to hand over these assets and documents to the incoming trustee immediately upon the expiration of their term. Those who fail to comply will be held legally accountable according to the Authority's schedule of penalties and violations, underscoring the Authority's commitment to protecting endowment assets from any illicit exploitation.