Instructions No. 3-2022 Concerning External Auditors

Palestine Monetary Authority
PALESTINE MONETARY AUTHORITY

Instructions No. (3) of 2022
Concerning External Auditors

Pursuant to the provisions of Decision-Law No. (9) of 2010 concerning Banks, particularly Articles (47) and (72) thereof, and after reviewing Instructions No. (10) of 2017 concerning the Guide to Best Practices for Bank Governance in Palestine, and in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following Instructions:

Article (1)
Definitions

The following words and phrases shall, wherever they appear in these Instructions, bear the meanings assigned to them below, unless the context indicates otherwise:

Joint External Audit: The appointment of two external audit firms to perform audit work and prepare a joint audit report with joint and several liability between the two audit firms, and the preparation of a non-joint audit report may be permitted in exceptional cases as determined by the Palestine Monetary Authority.

Other Services: Professional services not related to the audit or review of financial statements provided by the external audit firm during the contract period concerning the audit or review of the bank's financial statements, which also applies to services provided by a global firm of which the local firm is a part or a branch, or where they are linked by a business relationship or joint alliance.

Article (2)
Objective and Scope of Application

1. These Instructions aim to strengthen professional conduct rules, encourage neutrality, and raise the level of trust among users of financial statements.
2. The provisions of these Instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine.

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1 www.pma.ps
Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

Palestine Monetary Authority
PALESTINE MONETARY AUTHORITY

Article (3)
External Auditor Rotation and Joint Audit

1. The bank shall comply with the following:
   a. Conduct a joint audit for at least two consecutive years in the event that the same external audit firm continues to be appointed for a period exceeding (7) years. b. Conduct a joint audit permanently in the event that the same external audit firm continues to be appointed for a period exceeding (7) years if the bank is classified as a systemically important bank.
   c. Upon changing the external audit firm, reappointing it individually again is prohibited before two years have elapsed from the end of its last appointment to audit the bank's accounts, and in the event of reappointment before the two-year period expires, a joint audit must be conducted for at least one year.
2. The Palestine Monetary Authority may compel the bank to conduct a joint audit according to its assessment of the bank's supervisory status and risk levels.

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2 www.pma.ps
Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

Palestine Monetary Authority
PALESTINE MONETARY AUTHORITY

Article (4)
Other Services

1. The bank is prohibited from obtaining the following services from the external audit firm responsible for auditing the bank's accounts:
   a. Bookkeeping and maintaining accounting records. b. Designing and implementing systems and programs related to financial data.
   c. Investment, legal, or brokerage consulting.
   d. Performing administrative functions. e. Conducting actuarial studies. f. Performing internal audit functions.
2. The bank must observe international standards and relevant legislation if it wishes to contract with the external auditor to perform other services not listed in paragraph (1) of this Article, provided that they do not affect the auditor's independence, and in all cases, the bank must obtain the prior written approval of the Palestine Monetary Authority before contracting.

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3 www.pma.ps
Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

Palestine Monetary Authority
PALESTINE MONETARY AUTHORITY

Article (5)
Assessment of the Internal Control Environment

The bank shall comply with the following:

1. Contract with an audit firm or any specialized external party to assess governance and internal control systems, including the risk management, compliance, internal audit, and anti-money laundering environment, at least once every three years.
2. Obtain the prior written approval of the Palestine Monetary Authority when contracting with the audit firm or external party to carry out the assessment mentioned in paragraph (1) of this Article.
3. Provide the Palestine Monetary Authority with a report from the contracted audit firm or external party detailing the findings of the assessment immediately upon its completion.

Article (6)
Repeal of Conflicting Provisions

1. Paragraphs (10) and (11) of Item Two: "External Auditor" from Principle Eleven of Instructions No. (10) of 2017 concerning the Guide to Best Practices for Bank Governance in Palestine are repealed.
2. Any provision conflicting with the provisions of these Instructions is repealed.

Article (7)
Implementation and Enforcement

1. The bank must take the necessary measures to change the external audit firm if more than (7) years have elapsed since the firm's appointment, with the time period required for the change calculated from the 2021 year-end data.
2. The bank must provide the Palestine Monetary Authority with the measures taken to comply with the provisions of Articles (4) and (5) of these Instructions within a maximum period of (30) thirty days from the date of issuance of these Instructions.

Issued in the city of Ramallah on 03/04/2022.

Dr. Firas Malham
Governor
[Signature]

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4 www.pma.ps
Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487 *