a) The purpose of these Instructions is to set out the rules and standards of Shariah governance for the Capital Market Institutions, which provide, wholly or partially, products or services that are Shariah Compliant.

b) Paragraphs (2) and (7) of Article (3) and Paragraph (6) of Article (8) of these Instructions are mandatory to the Capital Market Institutions, which provide, wholly or partially, products or services that are Shariah Compliant. The other provisions of these Instructions shall be deemed as guidance.

c) These Instructions shall not prejudice the provisions of the Capital Market Law and its Implementing Regulations.

a) Any reference to the “Law” in these Instructions shall mean the Capital Market Law issued by Royal Decree No. (M/30) Dated 2/6/1424 H.

b) Without prejudice to Paragraph (c) of this Article, Expressions and terms in these Instructions have the meaning, which they bear in the Law and in the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority, unless the context indicates otherwise.

c) For the purpose of implementing these Instructions, the following expressions and terms, shall have the meaning they bear as follows, unless the context indicates otherwise:

• 1) Shariah Compliant: Compliant with decisions issued by the Capital Market Institution’s Shariah committee.

• 2) Shariah Compliance Policy: It is the policy that sets out the scope of products or services that must be referred to the Shariah Committee for its approval, and the mechanism and procedures taken to verify the alignment of these products or services with such policy and the decisions issued by the Shariah committee, and the procedures that must be taken in case of non-compliance.

• 3) Shariah Governance Framework: It is the internal model of Shariah governance of the Capital Market Institution, which includes the requirements of the Shariah Committee work, the Shariah compliance, and the internal Shariah audit, the mechanism of preparing reports on such functions and their administrative subordination, and the powers delegated by the Capital Market Institution's board -or equivalent- in relation to such activities. The Shariah Governance Framework includes, without limitation, determination of the number of the Shariah Committee members (if it is formed as a committee of the Capital Market Institution's board -or equivalent-), the term of their membership, the disclosure mechanism and forms to the Capital Market Institution's board -or equivalent- in case of conflict of independence, and the regularity in the submission of reports on which the board of directors -or equivalent- approves.

• 4) Relative: Parents, husband, wife, and children.

The board of directors of the Capital Market Institution -or equivalent- shall be responsible for the following:

• 1) Develop and approve the Shariah Compliance Policy of the Capital Market Institution. The board of directors -or equivalent- has the right to delegate the development of such policy to whomever it deems appropriate.

• 2) Develop and approve the Shariah Governance Framework of the Capital Market Institution. The board of directors -or equivalent- has the right to delegate the development of such framework to whomever it deems appropriate.1

• 3) Supervise the performance of the executive management and the delegates in charge of the implementation of the Shariah Governance Framework so that the board of directors -or equivalent- is convinced that their performance is consistent with the objectives of that framework.

• 4) Determine the appropriate remunerations of the members of the Shariah Committee in accordance with the approved policy and disclose such remunerations in the report of the board of directors of the Capital Market Institution -or equivalent-.

• 5) Disclose the curriculum vitae of the members of the Shariah Committee to the public in the report of the board of directors of the Capital Market Institution -or equivalent-.

• 6) Declare the independence of the Shariah Committee and ensure the absence of any obstacles to hinder its activities.

• 7) Approve the annual report of the Shariah Committee and disclose such report to the public independently or as a part of the report of the board of directors of the Capital Market Institution -or equivalent-

• 8) Conduct an annual evaluation of the extent of the independence of the Shariah Committee independent members and ensure that there are no relationships or circumstances that affect, or may affect, such independence.

• 9) The decisions of the Shariah Committee shall not be amended without its approval. And the board of directors of the Capital Market Institution -or equivalent- shall ensure the same.

The Executive Management of the Capital Market Institution shall be responsible for the following:

• 1) Determine the Shariah-related issues and refer them to the Shariah Committee to decide upon them and to provide the Shariah Committee with the required information on a timely manner.

• 2) Monitor the implementation of the decisions issued by the Shariah Committee.

• 3) Disseminate the culture of compliance with the Shariah-based governance principles throughout the Capital Market Institution.

• 4) Ensure that all transactions of the Shariah Compliant products and services are carried out in accordance with the Shariah Compliance Policy of the Capital Market Institution.

• 5) Inform the Shariah Committee as soon as becoming aware of transactions or operations that are not compliant with the decisions issued by the Shariah committee or the Shariah Compliance Policy or the Shariah Governance Framework with regard to the products or services that the Capital Market Institutions provide as Shariah Compliant products or services, and provide a plan to rectify the state of non-compliance for such cases. And adhere to the measures that the Shariah Committee deems appropriate regarding these transactions or operations.

The member of the Shariah Committee shall be equipped with the required knowledge and experience, which shall be assessed against the following criteria:

• 1) Shariah and Financial Knowledge: Appropriate Shariah knowledge in the jurisprudence of contemporary financial transactions, in addition to the ability to read and understand financial statements and reports.

• 2) Expertise: Sufficient expertise in the same field or in fields related to the Islamic financial businesses.

(a) The Shariah Committee shall hold its meetings regularly, and as may be necessary.

(b) The meetings of the Shariah Committee shall be attended by its members and the Secretary of the Shariah Committee. Neither the members of the board of directors of the Capital Market Institution –or any of its directors- nor the executive management shall be attending such meetings, unless such committee request his/her opinion or advice.

(c) The meetings of the Shariah Committee are valid if attended by a majority of its members. And the decisions of the committee shall be issued by a majority of the votes present. in case of a tie, the chairperson of the meeting shall have the casting vote.

(d) The meetings of the Shariah Committee shall be documented and minutes including the discussions and deliberations carried during such meetings shall be prepared. Recommendations of the committee and voting results shall be documented and retained in a special and organised register, including the names of attendees and any reservations they expressed (if any). Such minutes shall be signed by all of the attending members.