A. These principles aim to set the minimum requirements that would enhance effective management in financial institutions, directing their financial and non-financial resources towards achieving their strategic objectives, maintaining their stability, and protecting the rights of stakeholders.
B. An effective governance system requires the independence and separation of the position of the Chairman of the Board from the position of the Chief Executive Officer. This necessitates the availability of good organizational and administrative structures and clarity in the powers and responsibilities among the key parties in the financial institution, including board members and executives, in addition to establishing a general framework for oversight through risk management, internal audit management, compliance management, internal control systems, and external auditors.
C. These principles do not prejudice the requirements imposed on financial institutions under other relevant laws, regulations, and instructions.
D. The Saudi Central Bank has issued several instructions related to governance, and these principles should be read alongside them - as applicable - including the following:
- Code of Conduct and Business Ethics in Financial Institutions.
- Compliance Principles for Banks and Commercial Banks Operating in the Kingdom of Saudi Arabia.
- Appointment Requirements for Leadership Positions in Financial Institutions Supervised by the Saudi Central Bank.
- Sharia Governance Framework for Local Banks and Banks Operating in the Kingdom.
- Sharia Governance Instructions in Finance Companies.
E. Corporate governance enjoys international attention; several international bodies and organizations have issued governance guidelines, including the following bodies and organizations:
- Basel Committee on Banking Supervision (BCBS).
- Organisation for Economic Co-operation and Development (OECD).
- Islamic Financial Services Board (IFSB).
- The World Bank (WB).
- Committee on Payments and Market Infrastructures (CPMI).
A. These principles shall be binding on local banks and financial institutions, and real estate financing and refinancing companies.
B. Subject to the mandatory provisions stipulated in the relevant laws and regulations, these principles shall apply as guidelines to credit information companies, payment and financial technology companies, exchange companies and institutions, micro or nano consumer finance companies, companies supporting financing activities, companies registering leasing finance contracts, and debt crowdfunding companies. The Central Bank may, at any time, apply all or some of the provisions of these principles as binding.
Members should be qualified to perform the tasks assigned to them, have a clear understanding of the role required of them, and the ability to make decisions with neutrality and objectivity without any external influence from within or outside the financial institution. In particular, the following must be ensured:
4. The members' curricula vitae should be publicly available so that stakeholders can assess their competence and ability to effectively perform their duties.
5. The member should possess professional competence, including various practical and administrative skills and appropriate personal qualities, especially honesty and integrity, in addition to the following:
A. Leadership: Possessing leadership skills that enable delegation of authority, which motivates performance, applying best practices in effective management, and instilling professional values and ethics.
B. Competence: Reflected by the level of education, experience, skills, and the desire to continue learning.
C. Guidance: Possessing technical and administrative capabilities, quick decision-making, understanding the technical requirements related to workflow, ability for strategic guidance, long-term planning, and a clear future vision.
D. Financial Knowledge: Possessing skills to read and understand financial data, reports, and ratios used to measure performance.
E. Health Fitness: Not having any health impediment that prevents him from performing his duties and responsibilities.
6. The member shall possess the following qualities:
A. Honesty: His relationship with the financial institution should be a professional and honest one, disclosing any relevant information before executing any transaction or contract with the financial institution or any of its subsidiaries.
B. Loyalty: Avoiding transactions that involve conflicts of interest, ensuring fairness of transactions, and that they are conducted in favor of the financial institution and its stakeholders.
C. Diligence and Care: Performing his duties and responsibilities effectively, ensuring the collection of all information that would confirm that decisions made are in the interest of the financial institution. To this end, the following are incumbent upon him:
- Attending council meetings regularly, not being absent without a valid excuse, preparing for and actively participating in them, including raising relevant questions and discussing with executive managers.
- Making decisions based on complete information and in good faith; the member is not exempt from responsibility if he abstains from voting without clarifying his opinion on the matter under vote.
- Developing his knowledge of the financial institution's activities and other related fields.
- Ensuring that important and main topics are included in the council's agenda.
- The executive member shall provide comprehensive information to the council upon request.
The financial institution must have an effective board whose role is to direct the institution's operations in a manner that preserves its interests and enhances its value. The board bears responsibility for its actions even if it delegates committees, entities, or individuals to exercise some of its powers. In all cases, the board may not issue a general or indefinite delegation, and it must undertake the following:
30. Forming the executive management, organizing its work procedures, supervising and monitoring it, and verifying its performance of assigned tasks.
31. Setting the plans, policies, strategies, and main objectives of the financial institution, supervising their implementation, and reviewing them periodically.
32. Ensuring the soundness and financial solvency of the financial institution, and maintaining effective relationships with regulatory authorities.
33. Establishing clear limits of responsibility and accountability, and adhering to them at all levels of the financial institution, with a complete separation of responsibilities at the executive management level.
34. The organizational structure of the financial institution must define the competencies and distribution of tasks between the board and the executive management in accordance with best governance practices, enhancing decision-making efficiency and achieving a balance in powers and authorities. To achieve this, the board must:
A. Approve and develop internal policies related to the financial institution's operations, including defining the tasks, competencies, and responsibilities assigned to various organizational levels.
B. Approve a written and detailed policy specifying the authorities delegated to the executive management, including clarifications for each authority, the method of execution, and the duration of delegation. The board may request periodic reports from the executive management regarding the exercise of delegated authorities.
C. Define the matters reserved for its decision-making authority.
35. Ensure the adequacy of human and financial resources to achieve the financial institution's objectives, main plans, and fulfill its obligations.
36. Ensure the existence and development of effective compliance, internal audit, and risk management units, verify their independence from business departments, availability of appropriate authorities and resources, and training and capacity building of their staff in the relevant field.
37. Develop a comprehensive risk management strategy and policies appropriate to the nature and size of the financial institution's activities, supervise their implementation, and review them annually, taking into account linking the level of risks the financial institution is willing to bear over a specified period with the institution's strategy and capital plan.
38. Ensure the existence of an effective system for objectively and systematically evaluating the performance of the financial institution's employees at all levels. Specifically, the evaluation of the executive management's performance must be based on the long term and not limited to a single year’s performance.
39. Select senior executives and ensure the existence of an appropriate policy for qualified succession planning with the required skills.
40. Notify the Central Bank in writing of any penalties imposed by any supervisory, regulatory, or judicial authority that may affect the financial institution’s operations, within ten working days from the date the penalty is imposed.
41. Ensure the independence of the internal and external auditors, and the accuracy and integrity of the information and data to be disclosed in accordance with disclosure and transparency requirements.
42. Be familiar with the key risks that may affect the financial institution and its subsidiaries, exercise appropriate oversight over those companies, while considering their legal independence and governance requirements.
43. Establish a written and clear policy to address actual or potential conflicts of interest that may affect the performance of members, executive management, or other employees of the financial institution when dealing with such conflicts or with other stakeholders. This policy must include at least the following:
A. Emphasize to members, senior executives, and other employees the necessity to avoid situations that may lead to conflicts of interest with the financial institution’s interests, and to handle them in accordance with the provisions of relevant laws and regulations.
B. Illustrative examples of conflict of interest cases appropriate to the nature of the financial institution’s activities.
C. Clear procedures for disclosing conflicts of interest in transactions that may give rise to such conflicts, and obtaining the necessary authorization or approval.
D. Commitment to continuous disclosure of situations that may lead to conflicts of interest or when such conflicts occur.
E. Commitment to abstain from voting or participating in decision-making when a conflict of interest exists.
F. Clear procedures when the financial institution deals with a related party, which must be conducted on an arm’s length basis only, including disclosure to the public and the Central Bank without delay if the transaction equals or exceeds (1%) of the financial institution’s total revenues according to the latest audited annual financial statements.
44. The board is not exempt from responsibility and remains liable if the financial institution’s operations are outsourced to another party. It must understand the risks arising from outsourcing and ensure that outsourcing operations comply with the relevant Central Bank instructions.
45. Annually evaluate the following:
A. The performance of each member, with the involvement of an external party for evaluation contributing to objectivity.
B. The effectiveness of the board’s controls, procedures, structure, and composition, identifying weaknesses and making necessary changes when needed.
C. The effectiveness of governance policies, procedures, and practices, determining whether improvements or changes are required. The results of these evaluations must be used as part of ongoing improvement efforts, and if necessary, shared with the Central Bank.
46. Subject to relevant Central Bank instructions, ensure the existence and effectiveness of the following policies and procedures, including but not limited to:
A. Policies and procedures for IT governance and cybersecurity.
B. A policy defining the professional conduct and work ethics to be followed within the financial institution.
C. A policy defining the mechanism for reporting violations within the financial institution and protecting whistleblowers.
D. Policies and procedures for resolving complaints and objections that may arise between the financial institution and stakeholders.
E. Policies and procedures to maintain information confidentiality.
47. Approve the remuneration policy for employees of the financial institution, which must include at least the types of rewards such as (fixed rewards, performance-related rewards, or those granted in the form of shares).
48. Verify the accuracy and integrity of the annual and quarterly financial statements and approve them before publication.
49. Form an appropriate number of committees - in accordance with the provisions of Principle Five of these principles - and approve their bylaws, except for the Nomination and Remuneration and Audit Committees, which are subject to approval by the General Assembly. These bylaws must specify each committee’s tasks, duration and scope of work, granted authorities, responsibilities, and the board’s oversight mechanism. The board must continuously ensure that committee members perform their duties diligently.
50. Disclose in the board’s annual report the committees emanating from it, their scope of work, and the names of their members. The board chairman must provide the Central Bank with a list of these committees, their tasks, work procedures, and members’ names.
51. Without prejudice to the board of directors’ competencies, the chairman of the board shall undertake the following tasks:
A. Lead the board and supervise the effectiveness of its workflow and the performance of its competencies effectively.
B. Ensure that all board members receive complete, clear, and accurate information in a timely manner.
C. Represent the financial institution before third parties in accordance with the provisions of relevant laws, regulations, and instructions, and the provisions of the financial institution’s basic law.
D. Encourage effective participation between the board and the executive management.
E. Supervise the preparation of the board meeting agenda, taking into account any points raised by a board member or the auditor, and consult with board members when preparing the agenda.
52. Ensure that the financial institution adopts social responsibility programs - in accordance with the social responsibility policy approved by the General Assembly - and that the objectives of these programs support various social projects, increase financial awareness, meet the credit needs of the local economy through granting loans and facilities to productive businesses, and innovate products that encourage economic development without harming the financial institution’s solvency and stakeholders.
53. Ensure that the financial institution’s services meet the needs and requirements of the community at fair costs, and that the financial institution initiates providing facilities to support and encourage small and medium enterprises.
The executive management monitors and manages the daily operations of the financial institution, ensuring that activities comply with the business strategy, risk levels, and policies approved by the Council. It is responsible for the following:
54. Implementing the plans, policies, strategies, and main objectives of the financial institution approved by the Council.
55. Proposing the optimal capital structure for the financial institution, its strategies, and financial objectives.
56. Proposing a comprehensive strategy for the financial institution, main and phased work plans, investment policies and mechanisms, financing, risk management, emergency administrative condition management plans, and their implementation.
57. Proposing the main capital expenditures of the financial institution, asset ownership, and disposal.
58. Proposing the organizational and functional structures of the financial institution, clarifying the role, authority, and responsibility of various positions within the executive management, including the position of the CEO, and submitting them to the Council for consideration and approval.
59. Proposing the professional conduct and work ethics policy for the financial institution and submitting it to the Council for consideration and approval.
60. Proposing the rewards policy granted to employees, including at a minimum the types of rewards such as fixed rewards, performance-related rewards, or those granted in the form of shares, and submitting it to the Council for consideration and approval.
61. Properly applying financial and accounting systems, including systems related to the preparation of financial reports.
62. Applying appropriate control systems to lead and manage risks by establishing a general perception of the risks that the financial institution may face, creating an environment aware of the risk mitigation culture at the financial institution level, and transparently presenting it to the Council and other stakeholders.
63. Managing the financial institution's resources in light of its plans and strategic objectives approved by the Council.
64. Implementing internal control and risk management systems, including implementing the conflict of interest policy, verifying the effectiveness and efficiency of these systems, and ensuring adherence to the risk level approved by the Council.
65. Submitting an annual report to the Council on the internal control system and its application, to provide the Council with the opportunity to review the system and ensure its effectiveness.
66. Keeping the Council continuously and sufficiently informed of material matters and providing it with the information it may need to fulfill its responsibilities, supervise the executive management, and evaluate its quality.
67. Understanding and directing the financial and non-financial structures at the group level, and ensuring the availability of an appropriate mechanism to obtain updated information regarding the group’s structuring.
68. Establishing appropriate procedures for periodic communication with the financial institution’s major clients to assess their risks, taking into account the governance frameworks followed by clients before entering into credit relationships and similar arrangements.