Central Bank of the UAE Financial Reporting and External Audit Regulation 162/2018

J~~I a~I A.LJ~I i::.IJL.aW ..s~ u ,., IC CENTRAL BANK OF THE U.A.E. FINANCIAL REPORTING & EXTERNAL AUDIT REGULATION

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 Subject ~Li...JA,&ll JJ~ Table of Contents ~I Page I INTRODUCTION 2

OBJECTIVE 3 u-'-f-ll I SCOPE OF APPL_IC_A_T_I_O_N _____ ---1--3 ,1----------- ~' Jlhi Article (1) Definitions 3 ~LL....;a:i (1) oJW\ Article (2) Financial Reporting 5 ~WI .J,1,.;lllll eJ (2) oJW\ I Article (3) External Audit 7 ',,rl'Jl.i.11 J;!!J:i.11 (3) oJW\ '- Article (4) Duty to Report to the Central Bank 8 ~jS.J,All u~ .J,1,.;lllll eJ Y..P..J (4) oJWI ---------1-------1----- A rt i cl e (5) Islamic Banking 9 ~~'ii .U~I (5) oJW\ 1 Article (6) Enforcement & Sanctions 9 ~l~l~I.J iJiiil\ (6) oJW\ Article (7) Interpretation of Regulation 9 ~l.lilll ~ (7) oJWI --------ll-------1------------- - A rt i cl e (8) Cancellation of Previous Notices 9 Article (9) Publication and Application I 0 J:H,b:i.JIJ ~I (9) oJWI

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 FINANCIAL REPORTING & EXTERNAL AUDIT REGULATION Circular No.: 162 /2018 Date:~/ --1l2_/2018 To: All Banks Subject: Financial Reporting & External Audit I INTRODUCTION The Central Bank seeks to promote the effective and efficient development and functioning of the banking system. To this end, Banks must maintain appropriate records, prepare financial statements in accordance with the International Financial Reporting Standards (IFRS) and the instructions of the Central Bank, and publish annual financial statements bearing the opinion of an External Auditor approved by the Central Bank. In introducing this Regulation and the accompanying Standards, the Central Bank intends to ensure that Banks' approaches to financial reporting and external audit are in line with leading international practices. This Regulation and the accompanying Standards must be read in conjunction with the Central Bank Regulation and Standards on Corporate Governance in Banks, which establish the overarching prudential framework. This Regulation and the accompanying Standards are issued pursuant to the powers vested in the Central Bank under the Central Bank Law. Where this Regulation, or its accompanying Standards, include a requirement to provide information or to take certain measures, or to address certain items listed at a minimum, the Central Bank may impose requirements that are additional to the listing provided in the relevant Article. WI . LiJ:UI lilt.JI Lilli ..i l..J:i.i '-,r.'J u::- .J .. J:J r.:J r 2018/162 :~I ~_; 2018/ Q_E.__/ ).9 :e:,i...;L:i..11 ~ 0 I fa';/y 4.,i ;i.hLl I .J:l:ll, ..... 11 J l"'l.l::..i.l I I~ I fa, u I Y'?-:IJ uc :; .J.iL.o.11 ~ ,.i.;lll ~ .;.JI U -.,=JI .J:l:ll..... J l"'l..l:;.,j ,J..L.;,.11 ',fJlfa,,.';11 J.b')[I ~y ~IJ '':ffiy,.ll w~I )L= ,4.,i 4-ii y,.ll .J:l:lla...JIJ l"'l.l::..i.11 I~ J.i.,..,,) ti .l! J I"'~\ ~.JA! ':ffiy,.ll w~ ~~I wlp..)L....Jy ,(,ffiy,.ll w~I u,.iU

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 I OBJECTIVE u4 1J The objective of this Regulation is to establish the ;i,J~I .J:!:lUI l>" ~.ii .i.:,. ~.J ull l"l.l::..i..11 11t. LI..l.d-;l . . bl d d ti B k ' h , WI ".l111 :i...JWI wll . . .ii · .. 11 L · ·. - mm1mum 1 accepta e stan ar s or an s approac to '-.F' .J l-':!! .J _ ..>.U ~ .J -r ,...,. ~ financial reporting and external audit, with a view to: :(.)-">fa, <il .. l:~.J I. 11. Ensuring the soundness of Banks; and Contributing to financial stability. .I . ll The accompanying Standards supplement the Regulation to elaborate on the supervisory expectations of the Central Bank with respect to financial reporting and external audit. ~ ~ . ,,. >. • - ' ...b.ill ~ .a.ii . .11 UI .. - C;-'-"' y .J I" ...)"" .J:!:l )-!-.J2.J wll . ~L~. l......i! 4...iJl..§)1 ·.<: • .11 LI· - .11 wW - JU ~Y.~ - -· '-$..r...Y"' ~ y WI - .. .i111 UWI . '-,r,'.) l-':!! .J - I SCOPE OF APPLICATION This Regulation and the accompanying Standards apply to all Banks. Banks established in the UAE with significant Group relationships, including Subsidiaries, Affiliates, or international branches, must ensure that the Regulation and Standards are adhered to on a solo and Group-wide basis. I ARTICLE (1): DEFINITIONS ~LL.JU :(1) oJL....ll I I. 2. 3 4. 5. Affiliate: An entity owned by another entity ~ ftl ,:}..f,. ~I.J-! <ii)..,.. 0yS. :4'i_Ve 4.S.;,J. by more than 25% and less than 50% of its .4..!L. U"I.J l>" %50 uc Ji:i.J %25 jJ~ capital. Bank: A financial entity, which is authorized LI~I ~I.J-! 4-l c~ 9L. 1iLli1. :~I by the Central Bank to accept deposits as a .LI~ ~1.i,ll Jfo. ,..;fiy,ll bank. Board: The Bank's board of directors. Central Bank: The Central Bank of the 1i.i.:,.:;.JI ~y.11 wl.JL.)'I LI~ :(iJSyi,11 u~I United Arab Emirates. .,..;jSy,ll Central Bank Law: Union Law No (10) of 1980 concerning the Central Bank, the Monetary System and Organization of Banking as amended or replaced from time to time. .I .2 .. 3 .4 .5

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 6. 7. 8. 9. 10. 11. Controlling Shareholder: A shareholder who has the ability to directly or indirectly influence or control the appointment of the majority of the board of directors, or the decisions made by the board or by the general assembly of the entity, through the ownership of a percentage of the shares or stocks or under an agreement or other arrangement providing for such influence. External Auditor: The audit firm and the individual audit engagement team members conducting the audit. Where relevant, specific references are made to the audit firm only in certain paragraphs. Group: A group of entities which includes an ..iyS ~ ~I w..iyS.ll u-- :i.c~ :~~ entity (the 'first entity') and: :.., ,("J}yl 0yS.ll") a) any Controlling Shareholder of the first entity; b) any Subsidiary of the first entity or ofany ~ ~W ..,I ,J}yl ..:.,yS.ll ~l..:i :i.Sy;:a -ii (Y Controlling Shareholder of the first _, iJ}yl ..:.,yS.ll ~ entity; and c) any Affiliate. Islamic Financial Services: Shari'a compliant financial services offered by Islamic Banks and Conventional Banks offering Islamic banking products (Islamic Windows). Matter of Significance: A matter, or group of matters, that would have a significant impact on the activities or financial position of the Bank. Examples include failure to comply with the licensing criteria or breaches of banking or other laws, significant deficiencies and control weaknesses in the Bank's operations or financial reporting process or other matters that are likely to be of significance to the function of the Central Bank as regulator. Pillar 3: Pillar 3 disclosure requirements - consolidated and enhanced framework issued .6 .7 .8 .9 .10

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 12. 13. by the Basel Committee on Banking (#IJ ,2017 LJ"_J .. ~ 4~1 ~I.§)\ u-k Supervision in March 2017 and any .'½le 4.i:.. 'l/ w)y..i...:i subsequent revisions. Senior Management: The executive management of the Bank responsible and accountable to the Board for the sound and prudent day-to-day management of the Bank, generally including, but not limited to, the chief executive officer, chief financial officer, chiefrisk officer, and heads of the compliance and internal audit functions. Subsidiary: An entity, owned by another entity by more than 50% of its capital, or is under full control of that entity regarding the appointment of the board of directors. ARTICLE 2): FINANCIAL REPORTING 1. 2. 3. 4. The Board and Senior Management are uc u,µ~ l,/WI 0)..i/llJ ,;;_Jl..i/ll ~ ufa responsible for ensuring that financial :4W1 wl...i4,JI ui u.o ~I statements are:

1. prepared in accordance with accounting wl..,).-J wl..,~ '-:-1-?-JA! .,11..l~) ~ ..l! .1 policies and practices that are widely !~IJ JL.h.i u-k ylJ..i :i...lfo ~h.. accepted internationally; ii. supported by record keeping systems; and J !w)4,...J\ ..l::.i,J f"~ •jy..a .11 iii. issued annually to the public together i.r,-.Jl..:...~..l..a(#iY.¼i..,.J~'--:!_,.i...,fo .111 with an independent External Auditor's .~ opinion. The Board audit committee must oversee the financial reporting process and the establishment or amendment of significant accounting policies and practices. Banks must prepare their financial statements in accordance with the IFRS and the instructions of the Central Bank. J wJ ~1 4,.i'1...i4-! ..il~H r.fa ui ~~1 u-k ~ wl...,J.,,.:i J 114WI .>.ul.:i:ill e!-) 4 J.i.ll _».i..a...J\ 11 .(#_fiy,.ll u~I Banks must use valuation practices consistent t-- ~ ~ wl.., .J'-- f"~ ui ~ ~I u-k ~ with IFRS and subject the fair value ~ uiJ "4WI .J:ul.:i:ill e!') 4 J.i.ll _».ila...JI" .12 .13 . l .2 .3 .4

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 5. 6. 7. 8. 9. 10. 11. estimation framework, structure and processes ~ ,:i...l.iWI :l...yill y,.li:i ..:.iyl..c J # J }.b) to independent verification and validation. .:uu.......JI :U.i~IJ The Board must ensure adequate governance structures and control processes for all financial instruments that are measured at fair value for risk management and financial reporting purposes. Banks must avoid taking any action in whatever form, which may disclose or reveal their intentions regarding distribution or repatriation of profits, retained earnings, reserves, or other component of regulatory capital, unless they have obtained the prior written no-objection from the Central Bank. Banks must submit their audited financial statements together with the independent External Auditor's opinion to the Central Bank no less than three weeks prior to the meeting of the general assembly and no more than three months after the financial year-end. Banks must not make any distribution or repatriation of profits, retained earnings, reserves, or other component of regulatory capital, unless they have obtained the prior written no-objection from the Central Bank. Banks must not present their audited financial statements at the meeting of the general assembly, or otherwise make public such statements, unless they have obtained the prior written no-objection from the Central Bank. Banks must publish on their website their audited financial statements together with the independent External Auditor's opinion no more than four months after the financial year￾end. They must also be published in the Banks' annual report. Banks must make available upon request a printed or electronic copy of their most recent published audited financial statements together with the independent External .5 .6 .7 .8 .9 .10

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 Auditor's opinion to any shareholder or customer of the Bank. ARTICLE (3): EXTERNAL AUDIT 2. 3. 4. 5. 6. 7. Banks must, every year, appoint an External (j!.l.o ~ ,~ JS 'f"..fo ,) 21..,_i.,JI ~ ~ Auditor or more, approved by the Central ''-ifi_y,.ll uy.a..JI ~ U" ~ ,fol .Jl '-.F) . .::.. Bank, for auditing their accounts. .4,J~l........:.. ~..ul The Board audit committee must recommend the appointment, reappointment, dismissal and compensation of the External Auditor. Banks must rotate their external audit firm at least every 6 years, subject to the conduct of a procurement procedure. In addition, Banks must rotate their external audit firm's partner in charge of the audit every 3 years. The Board audit committee must oversee the )foul O J~';I\ uJ.;,,..J ¼.:ill ~..i:i..11 ~ ~ ~ External Auditor's effectiveness and ·'-.r--}..:JI (j!.1.o..11 :i,;l)w...1.J o~us. ~ u~';11 independence. The external audit firm engaged by the Bank, including its Affiliates or Subsidiaries, must not provide any non-audit services to the Bank during the financial years of its external audit mandate, which could impair its objectivity and independence. The External Auditor must conduct audits in accordance with the International Standards on Auditing (ISA) that require the use of a risk and materiality based approach in planning and performing the audit. The scope of the external audits must include areas such as the loan portfolio and loss provisions, non-performing assets, asset valuations, trading and other securities activities, derivatives, asset securitizations, consolidation of and other involvement with off-balance sheet vehicles, the Pillar 3 reporting and the adequacy of internal controls over financial reporting. I.ii • -.ii.JI ~ I Li ·· · i WI --.1.o..11 1- i.....ia,,,.J .J (.}.!! »,. (" .Ji:! u '-,F.) l-'9 ~ . . - 1..i..:...:i....1 ~ ~11 ,(ISA) - · ..ull 4-...J ..i.11 La...JI (" . -r .J (.}.!! - .J Y-:l · ~\ ~')/\ .Lli....J\ 1- WI.! ;i,.·,A '-r··· - .J~ ~ -::-:--,i-- . ~.iil I ~I..» j .J ~ .1 .2 .3 .4 .5 .6 .7

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 8. 9. I 0. 11. The External Auditor must comply with the independence provisions laid down in the Central Bank Law, this Regulation and the accompanying Standards. In case of violation of these provisions or failure in the performance of duties, the Central Bank may take any measures against the violating or negligent External Auditor, including rejection by the Central Bank to carry out audits in Banks. The Central Bank a Bank to · - "li.lw .ill.JI •.1. • i ·.c: · -11 u · --11 may • reqmre lJ±!L! •. . /'fi u '-i__,....r' ~ .JYH rescind the appointment of an External ~I .J:!:lt.....J'-! I' .A ~ oJi .J.J! l~j -r-.J~ l'3..l.G Auditor it determines has not adhered to .~1.S.ll ~)w...'i/1) o._)fiJl fo. oJi) ii~\ established professional standards or has inadequate expertise or independence. The External Auditor must meet with the Central Bank as deemed necessary for supervisory purposes. The Central Bank will access the External Auditor's working papers, when necessary. The Central Bank may require a Bank to appoint an auditor at the Bank's expense, who may be the existing External Auditor or another auditor specified by the Central Bank, to provide a report on a particular aspect of the Bank's business operations, prudential requirements, risk governance framework or such other matters as the Central Bank may specify. , "..l.G . . . .ill.Ji ·.I. . \ ·.c: · -1\ u · -.II · l'3 ~ . /'fi u '-i__,....r' ~ .J.YH ~WI -r-).:JI l'3~1 JA ufa ~ ,~I yl....i.:.. ~ .J:1.fa t,1..li:i.l ''-ijSyJI u~I o..l.l.:>..;! _j,,.I L'3..l.G Ji _jl ,~I w4L= '-:-WI.?. lJA ..l.l.......:,,,.. '-:-LIL;,. 0~ ) , _;.bl.:...JI U p. ).b j .Ji ,~jl ~ 'ill wl.,ilb:i.JI ,'-ijSyJI u~I lA..i.l.:>..;! ~ -s_j,,.i .J.JAj '-ii I ARTICLE (4): DUTY TO REPORT TO THE CENTRAL BANK I. 2. External Auditors must promptly report to the Central Bank violations of the Central Bank Law, regulations, instructions and any Matters of Significance arising from their audit of the Bank. External Auditors making such reports in good faith shall not be considered to have breached any of their obligations. Banks must promptly notify the Central Bank u ~I )..l::2..:..H .J,ill ~ I' .fa 0i ~ _,i,JI ~ ~ in case of resignation of their External Auditor y4-u,iJ '-r-.J.:JI ~..l,Q :i.ll.i:i....l Jl.:... ~ i.ifiyJI .8 .9 .10 .11 . I .2 Wag( ~ L , . ~

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 and the reasons thereof, as well as obtain the no-objection from the Central Bank in case of their dismissal or change. Divergence of opinions between the Bank and its External Auditor cannot be ground for dismissal. ARTICLE 5 : ISLAMIC BANKING

1. Banks offering Islamic Financial Services must prepare their financial statements in accordance with the IFRS and the instructions of the Central Bank. ARTICLE (6): ENFORCEMENT AND SANCTIONS
2. Violation of any provision of this Regulation and the accompanying Standards may be subject to regulatory action and sanctions as deemed appropriate by the Central Bank. These may include withdrawing, replacing or restricting the powers of Senior Management or members of the Board, providing for the interim management of the Bank, or barring individuals from the UAE banking sector. ARTICLE (7): INTERPRETATION OF REGULATION ui ~)l...J ~L.. wl....l:>. I"~ _;11 121 __,.i,JI -..le Y-?-:1 ~.J..i.ll .J:!:!l...JI i..,,l,?,J"'-! ~I 4-,1"l..i4! ..ii~~ l"fa u~I W~.J (IFRS) ~WI Y.)-ull ~) . ':$ jS y,.l I ~ ~ · -I\ l.....!I Ll.::..i.1I Ii.Ii ~ ') ~WI · · - . ..Y"" .J:!:! .JI" I" ~ lAI.J:l ;]I wl~l»ll.J ¼l..!)I wl~l..»)tl ~l .Ji ~ 12l.Jj ~ ..l! .J . W)L.. ':$ jS y,.l I u ~ I ~L....oc.i .Ji ,yWI o)..i)tl d.:1.:..)l....::, ~ .Ji Ji~\ _);.,,.. .Ji ,~ 4..'.i!y, o)..ij J¾!Y .Ji ,;;_Jl..i)tl ~ wl..Jl...)tl :U.J..i~~~I ti.bill~ J-li 04 ..il)i ;;..l.:...'.i..J\¼~I I. The Regulatory Development Division of the u~I ~ ¼l..!)I :i........l::J')I .J:l,b:i o..l.:,,..J ufo Central Bank shall be the reference for ·1"1..l.::..i.1I Ii.Ii l"~i ~ ~ t-?' y,.ll ~ ':$ jS y,.ll interpretation of the provisions of this Regulation. ARTICLE (8): CANCELLATION OF PREVIOUS NOTICES
3. This Regulation and Standards replace all Articles of the following previous Central Bank Circulars and Notices with respect to financial reporting and external audit: ..ii__,... ~\S J.:....o -y ~y,.ll .J:!:!l...JI.J l"Ll.::..i.1I Ii.Ii J.:..,i ,~WI 'ijSy,.ll u~I wl).-'-~l.J l"':!"'w ~..i:i..1I.J ~WI Y-..Jli:ill ~ Y. ~I '"ld;; ..JfiiJI.J :~).a~ll i. Circular No 74 dated November 17 u,iii.l.o.1I -1981 Y.-"!~ 17 t..J_;..ll 741"5..J ~I 1981, External Auditors of Banks; .121 p, ~ ..JL;Ji .1 I I

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 11. Ill. IV. V. VI. Vil. Vlll. IX. X. Circular No 321 dated 24 January 1985, Name of the External Auditor to be provided to Central Bank before holding of AGM by the Local Banks; Circular No 348 dated 14 August 1985, Cooperation between the Bank's External Auditors and Central Bank; Circular Letter No BSD/908/85 dated 29 October 1985, External Auditors of Banks - Further clarifications to Circular No. 321 of 24/01/1985 and Circular No. 74 of 17/11/1981; Circular No 375 dated 13 February 1986, To provide the names of at least three Audit firms; Circular No 445 dated 15 June 1987, Annual accounts - Approval for Publication, Profit distribution/ repatriation - No national Banks to distribute profits and No Foreign Banks to repatriate their profits without prior approval of the Central Bank; Circular No 466 dated 29 October 1987, External Auditors Report; Circular No 20/99 dated 25 January 1999, Adoption of International Accounting Standards (IAS); Notice No 1312/2008 dated 10 March 2008, Islamic Products/Investments - Accounting Treatment; and Notice No 9278/2011 dated 22 December 2011, Provisioning and Preparation of Annual Accounts. ARTICLE (9): PUBLICATION AND APPLICATION

1. This Regulation and the accompanying Standards shall be published in the Official Gazette in both Arabic and English, and shall come into effect one month from the date of publication. i,L.....I t-l.li:i -1985 Y-1..l,i 24 t.J_,-J1 321 r-3 .J ~1 iic ~ <$fi_yJI wy.-,Jl ~) . .:..11 ~.wl .~l~J-4ll~..,Jlw~I 1985 ~I 14 t.J,-JI 348 r-3.J ~I w. ~J -.l\ ~ ~ .· .. II · WI .· .. cio,w\ · · l...r..:ill U:l:l':"-.J u:- u:!-! UJ . .,sjSy.ll 29 ~.J_j,JI 85/908/'-fJ ,0"1 ·-r- r-3.J ~ 4-11......J -~P- ~.JWI ().!ii.wl - 1985 Y.fol 1985/01/24 t.J_,-J\ 321 r-3.J ~ w~ji .1981/11/17 t.J_,-J\ 74 r-3.J~IJ -- -~ 1986 I . 13 . '-·l\ 375 " _ ... ~I\ f':l..l.i.l u . .J:! .)-!! (.JY"' ~ ) ~ .J!';ll ~ ~.i:i -:.iL..,,.., ,.. ..'.:..i)l3 i,I.......\ 1987 ,__,u_J;l 15 t.J,JI 445 r-3.J ~\ ~jjiJ ,~\ ~ :i.iil,.JI -~li..:...11 w'-!.....,,J\ ~,.i,JI tJ_j.1 ~)\ JLll r,'-!};ll ~p:j/e,'-!};l\ '1J •e,'-!) ~jfa. ~,JI ~P. ~ '1 -~';l\ lA.Jt:i.J r,'-!) ~~ ~';l\ ~,.i,JI tJ_j.1 ~ .'-fjSy.ll wy.-,JI u.o ~ :i.iil,.. UJ.l.! ~)\ -2008 0" JI.... 10 tJ;-J\ 2008/ 1312 f'3 .J Ji ... ::.'';\ :U..t....JI ~)I.... )7 I wl )...o:i:i....i '1 / w~ I .~WI ~J 22 t.J,-J\ 2011/9278 f'3 .J .)k...:;,)1\ w'-!L...,.,J\ J.lc)J wi .., . ..,.;.JI 0.lfo •2011 .~li..:...11 .1
2. Banks that will have the same external audit ~.i:ill ~ )-o u,d.i 4-,iJl ufa ~I ~ ,.i,JI ~ ~ .2 firm engaged cumulatively for 6 years or more ~4-li fol JI wi,l.,,, 6 ojiil 4,-Slji ~I ',P".JWI as at the end of 2018 must rotate the external

FINANCIAL REPORTING AND EXTERNAL AUDIT REGULATION 162/2018 d. fi b" h . I d f , WI --.u11t....... · " .. _ ·l20I8AJ..... au it mn su ~ect to t e time y con uct o a -r,.J L.}.!! ,... .J:!:!'U! r-.JlJ u procurement procedure. .4-:l.l.! ~I ~I wll'-ly,,,.] ~ .JA! ':?~I ~¼h -i.fiyJI o..l.oi..'.i.JI ~;,JI wl}..o)'l u.Y-4-" - o).l)'l u-4..o l.J"¾l.J Khalifa Mohammed Al Kindi Chairman of the Board - Central Bank of the UAE