Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking

Saudi Central Bank (SAMA)
Reference No.: 45075579 | Date: 17/12/1445H | Attachments: 5 pages Circular To: Respected Banks, Subject: Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking. Based on the powers vested in SAMA under its Law issued by Royal Decree No. (M/36) dated 17/12/1445H, and related regulations. With reference to the ongoing work to establish a supervisory framework for banks conducting Islamic banking activities, and SAMA’s commitment to enhancing disclosure levels to strengthen transparency in the financial sector. Please find attached the Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking, which aim to establish minimum requirements for these disclosures. For information and action, effective as of 31 December 2024. Yours sincerely, Zayed bin Ahmed Al-Sheikh Deputy Governor for Supervision Distribution Scope:

• Local banks and financial institutions operating in the Kingdom.

Saudi Central Bank (SAMA)
Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking June 2024

Contents

1. Introduction ................................................................................................................... 3
2. Objective ....................................................................................................................... 3
3. Scope of Application ..................................................................................................... 3
4. Definitions ..................................................................................................................... 4
5. Disclosure Requirements ............................................................................................... 4
6. Effective Date ............................................................................................................... 5

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1. Introduction
   Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking is issued by SAMA in exercise of the powers vested in SAMA under the Saudi Central Bank Law issued by the Royal Decree No. M/36 on 11-04-1442H (26 Nov 2020G) and the Banking Control Law issued by the Royal Decree No. M/5 on 22-02-1386H (11 June 1966G) and the rules for Enforcing its Provisions issued by Ministerial Decision No 3/2149 on 14-10-1406AH.

These minimum requirements shall be read together with the Shari’ah Governance Framework for Local Banks Operating in Saudi Arabia issued by SAMA.

2. Objective
   Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking set out minimum disclosure requirements for banks related to Shari’ah Governance. The disclosure requirements, will enhance the existing corporate governance and Shari’ah governance frameworks applicable to the banks.

3. Scope of Application
   Shari’ah Governance Related Disclosure Requirements for the Banks Conducting Shari’ah Compliant Banking shall be applicable to all domestic banks licensed by SAMA under the Banking Control Law that conduct Shari’ah compliant banking activities. Banks must ensure that compliance practices by their majority owned banking subsidiary(ies) or branches conducting Shari’ah compliant banking activities outside Saudi Arabia are consistent with these minimum requirements. In case, the provision of this circular are in contradiction to that of host country’s regulation, the host country’s regulation will apply.

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4. Definitions
   The following terms and phrases used in this document shall have the corresponding meanings unless otherwise stated.

SAMA: The Saudi Central Bank.
Bank: Any domestic bank that is licensed to carry out banking business in Saudi Arabia in accordance with the provisions of the Banking Control Law and that conducts Shari’ah compliant banking either as a full-fledged Islamic bank or through an Islamic Window operations. Shari’ah Committee: A Shari’ah Committee responsible for supervising compliance with Shari’ah principles and rules and their application at the bank. Shari’ah Committee Members: A group of specialists whose knowledge and experience are not limited only to the Shari’ah and related matters, but also include the jurisprudence of contemporary financial transactions used to form Shari’ah decisions given to the bank. These Shari’ah decisions are usually not directed to the public or entities engaging in other activities. Annual Report: Information and data published by the banks along with audited financial statements which covers activities and financial performance throughout the preceding year.

5. Disclosure Requirements
1. Banks are required to disclose the following in their Annual Reports:
a. A statement on the independence of their Shari’ah Committee members as per the requirements mentioned in Article 7 of the Shari’ah Governance Framework for Local Banks Operating in Saudi Arabia; b. The Curriculum Vitae of their Shari’ah Committee members outlining their qualifications and experience; and
c. Any change of members of their Shari’ah Committee during the financial year.

2. Banks are required to disclose, on an annual basis, the Shari’ah pronouncements / resolutions issued by their Shari’ah Committees during the previous 12-months period ending 31 December of each calendar year. At a minimum, this should include;
a. the name of the product/service offered by the bank based on the resolutions issued by the Shari’ah Committee; and b. the decisions of the Shari’ah Committee (including rationale).

In doing so, banks may assess confidentiality and competitiveness considerations when making this disclosure and limit publication to information that is or will be made public.

The above disclosures (1&2) should be made at a minimum, electronically via the bank’s website.

6. Effective Date
   These requirements will be effective on 31 Dec 2024.

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