Update of the Key Principles of Governance in Financial Institutions

Translated Document

Based on the powers granted to SAMA under its law issued by Royal Decree No. (M/36) dated 11/04/1442H , and other relevant laws, and further to the Key Principles of Governance in Financial Institutions Supervised by SAMA, as issued in Circular No. (42081293) dated 21/11/1442H . We would like to inform you of the update to the principles mentioned above, in accordance with the version published on SAMA's website, in line with the Companies Law issued by Royal Decree No. (M/132) dated 01/12/1443H and its Implementing Regulations. For your information and action accordingly, the principles shall be mandatory for the financial institutions to which they apply, effective from this date. Please note that the attached amendments revoke any provisions that are in conflict with them from the relevant instructions of SAMA. The updated provisions of the Key Principles of Governance in Financial Institutions Supervised by SAMA . First:
Updating the definition of the term (financial institution) to be as follows: "An entity subject to the control and supervision of the Central Bank."
Second:
Deleting paragraph (B) of the factors affecting independence included in the definition of the term (independent member), which stated that: "if he is a representative of a legal person that holds 5% or more of the shares of the financial institution or any company within its group;". Third:
Updating paragraph (E) of the factors affecting independence included in the definition of the term (independent member) to be as follows:" if he works or used to work, within the preceding two years, for the financial institution, for any company within its group, for it's Substantial Shareholders, or for main suppliers and external auditors, or he held controlling interests in the financial institution, any company within its group, Substantial Shareholders, or any party dealing therewith like external auditors or main suppliers within the preceding two years." Fourth:
Updating paragraph (17) under (2 nd
Principle/ Formation, Appointment and Board Affairs) to be as follows: "Each member shall immediately inform the Board of any -direct or indirect- interest he has in the businesses and contracts executed for the financial institution’s account, and shall not participate in voting on the decision to be taken in this regard." Fifth:
Updating paragraph (A) of item (43) under (3 rd Principle/ Responsibilities of the Board) to be as follows: "Emphasize that members, senior executives and other employees of the financial institution avoid situations that may lead to a conflict of their interests with those of the financial institution, and deal with such cases as per the provisions of the relevant laws and regulations." Sixth:
Deleting item (79) under (5 th
Principle/ Committees Formed by the Board / The Audit Committee), which stated: "The committee shall be formed by a decision of the Ordinary General Assembly".
Seventh:
Deleting item (80) under (5 th
Principle/ Committees Formed by the Board / The Audit Committee), which stated: " The committee chairman and members shall be appointed for a period of three years, renewable for a maximum of two additional terms". Eighth:
Updating the footnote of item (78) to be as follows: " As for banks, all committee members shall be independent".
Ninth:
Updating paragraph (T) of item (102) under (7 th Principle/ Disclosure and Transparency) to be as follows:" Information related to any businesses or contracts to which the financial institution is a party, or in which any related party has an interest. This shall include the names of persons engaged in these businesses or contracts, and the nature, terms, duration, and amount of same. If no such businesses or contracts exist, the financial institution shall submit a statement of same".

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