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Article (14) Corporate Governance

C 3/2023 Effective from 29/9/2023
14.1

A Finance Company must develop its own principles and policy for corporate governance, have them approved by its board of directors and provide the Central Bank with a copy thereof. The corporate governance policy must, at a minimum, include the following items:
 

a.A description of the organizational structure, including all departments and positions as well as their duties and responsibilities;
 
b.Controls for independence and segregation of duties;
 
c.Roles, responsibilities, and composition of the board of directors and, if applicable, its committees;
 
d.Remuneration and compensation policies;
 
e.Conflict of interest controls;
 
f.Integrity and transparency controls;
 
g.Controls ensuring compliance with applicable laws and regulations;
 
h.Methods for maintaining confidentiality of information;
 
i.Controls for the protection of corporate assets; and
 
j.Delegation of authority.
 
Founding shareholders
 
14.2

Each founding shareholder must satisfy Fit and Proper requirements defined by the Central Bank. In particular, a founding shareholder must not have:
 

a.Been convicted of any crime involving dishonor or dishonesty, or that involves violence;
 
b.Failed to honor financial liabilities to any bank or creditor;
 
c.Declared bankruptcy or failed to reach a settlement agreement with creditors;
 
d.Had properties confiscated; or
 
e.Been placed under court receivership, unless he has been rehabilitated or pardoned by the relevant authorities.
 
14.3The number of founding shareholders of a Finance Company should be in line with the Commercial Companies Law.
 
Responsibility of the board
 
14.4Members of the board of directors of the Finance Company must act with integrity, exercising their Duty of Care and Duty of Loyalty.
 
14.5Members of the board of directors of the Finance Company are responsible for ensuring effective control over the Finance Company’s entire business. Members of the board of directors of the Finance Company must ensure that a Finance Company has a robust corporate governance policy commensurate with its risk profile.
 
14.6Members of the board of directors of the Finance Company are responsible for approving and overseeing implementation of the Finance Company’s strategic objectives and its risk management function, compliance function and internal and external audit.
 
14.7Members of the board of directors of the Finance Company are responsible for the organizational structure of the Finance Company, including specifying the key responsibilities and authorities of the board and the Senior Management including the heads of the risk management, compliance and internal audit functions.
 
14.8Members of the board of directors of the Finance Company are responsible for overseeing Senior Management, ensuring that the Finance Company’s activities are carried out in a manner consistent with the business strategy, corporate governance framework, remuneration and other policies approved by the board of directors of the Finance Company.
 
Board composition and qualification
 
14.9The board of directors of a Finance Company must have no fewer than five members. At least 60% of the board members must be experienced in the finance and banking business. At least 60% of board members of an Islamic Finance Company must have knowledge of the Islamic finance and banking business.
 
14.10The majority of the board of directors of a Finance Company must be U.A.E. nationals. The board must be chaired by one of the board members who is a U.A.E. national.
 
14.11All of the members of the board of directors must be non-executives. There must be no overlap between the function and role of the board and general management. A person holding a position in Senior Management must not hold a board position.
 
14.12At least 1/3 of the members of the board of directors must be independent members in order to facilitate effective oversight of the Finance Company. Collectively, the board members must have knowledge of all significant businesses of the Finance Company. The board members must have an appropriate balance of skills, diversity and expertise commensurate with the size, complexity and risk profile of the Finance Company.
 
14.13

A Finance Company must have a clear and rigorous process for identifying, assessing and selecting candidates for the board of directors of the Finance Company. At a minimum, board members must meet the following Fit and Proper requirements:
 

a.Possess the necessary knowledge, skills and experience; and
 
b.Have sufficient time to fully discharge their responsibilities.
 
14.14

The board members of a Finance Company must satisfy Fit and Proper requirements defined by the Central Bank. In particular, a board member must not have:
 

a.Served as an auditor of a Finance Company while concurrently serving in the board of directors of the same Finance Company;
 
b.Been terminated from any senior executive position in a company engaged in financial activities on the basis of disciplinary matters or on the basis of a disciplinary action based on a court judgement;
 
c.Been convicted of any crime involving dishonor or dishonesty, or that involves violence;
 
d.Failed to honor financial liabilities to any bank or creditor;
 
e.Declared bankruptcy or failed to reach a settlement agreement with creditors;
 
f.Had properties confiscated; or
 
g.Been placed under court receivership, unless he had been rehabilitated or pardoned by the relevant authorities.
 
14.15A Finance Company must obtain approval from the Central Bank prior to nominating or appointing members to its board of directors.
 
14.16A Finance Company must obtain approval from the Central Bank prior to any membership changes in its board of directors.
 
Board committees
 
14.17To cover areas requiring special expertise, the board of directors of a Finance Company must form board committees. Said committees must at a minimum include a separate board Audit Committee and a separate board Risk Management Committee. Where board committees are set up, they must be chaired by an Independent Member of the board of directors and must not be chaired by a member of the Senior Management or an external party.
 
Credit committee
 
14.18To review and approve substantial loans, the board of directors of a Finance Company is encouraged to establish a credit committee of no fewer than three members. Significant loans must be reviewed and approved by the board of directors. Finance Companies must decide on the definition of substantial and significant loans individually, based on the size of the Finance Company and its scope of activities.
 
Sharia’a supervision committee of an Islamic Finance Company
 
14.19The memorandum and articles of association of an Islamic Finance Company must state the appointment of a Sharia'a supervision committee, of no less than three members from among Islamic doctrinal specialists, who have previous experience in the area of Islamic financing.
 
14.20The Sharia'a supervision committee must ensure that the conduct and transactions of an Islamic Finance Company are in accordance with Islamic Sharia'a provisions. The articles of association of an Islamic Finance Company must specify the method by which the said committee is formed and the manner in which it conducts its duties and functions.
 
14.21The Sharia'a supervision committee must be responsible and accountable for all its decisions, views and opinions related to Sharia'a matters. While the board of directors of a Finance Company bears the ultimate responsibility and accountability on the overall governance of the Islamic Finance Company, the Central Bank expects the board of directors of a Finance Company to be guided by the Sharia'a supervision committee on compliance with all Sharia'a decisions, views and opinions applicable to the business of the Islamic Finance Company.
 
14.22In case a dispute or conflict arises between the Sharia’a supervision committee and the management of the Finance Company, the committee must refer the matter to the Higher Sharia’a Authority for decision.
 
14.23

An Islamic Finance Company must ensure that its corporate governance framework adequately provides for:
 

a.Compliance with Sharia'a provisions;
 
b.The role of the Sharia'a supervision committee in the governance of the Islamic Finance Company;
 
c.The rights of investment account holders and the processes and controls for protecting their rights; and
 
d.Transparency of financial reporting in respect of investment accounts.
 
14.24An Islamic Finance Company must ensure compliance with any direction or guidance issued by the Higher Sharia'a Authority with respect to its Sharia'a governance framework.
 
14.25An Islamic Finance Company must immediately notify the Central Bank and the Higher Sharia'a Authority if it becomes aware of any material information that may negatively affect the Fitness and Probity of a Sharia'a supervision committee member.
 
Senior Management
 
14.26

Any nominee for Senior Management must satisfy Fit and Proper requirements defined by the Central Bank. In particular, members of Senior Management must not have:
 

a.Been dismissed from a previous job on the basis of disciplinary action;
 
b.Been convicted in any crime involving dishonor or dishonesty, or that involves violence;
 
c.Failed to honor financial liabilities to any bank or creditor;
 
d.Declared bankruptcy or failed to reach a settlement agreement with creditors;
 
e.Had properties confiscated; or
 
f.Been placed under court receivership, unless they had been rehabilitated or pardoned by the relevant authorities.
 
14.27

The nominee for a Senior Management position of a Finance Company must, at a minimum, meet the following professional requirements:
 

a.Be theoretically and practically familiar with the Financing business;
 
b.Have appropriate academic and professional qualifications; and
 
c.Adequate experience in the finance field for not less than ten years. The Central Bank may, at its own discretion, reduce periods of experience.
 
14.28

The nominee for a Senior Management position of an Islamic Finance Company must, at a minimum, meet the following professional requirements:
 

a.Be theoretically and practically familiar with the Islamic Financing business;
 
b.Have appropriate academic and professional qualification; and
 
c.Adequate experience in the finance field for not less than ten years. The Central Bank may, at its own discretion, reduce periods of experience.
 
 On a case-by-case basis, the Central Bank shall have the right to exempt the nominees from such conditions upon the sole discretion of the Central Bank.
 
14.29The post of the chief executive officer of a Finance Company or his equivalent must be separated from other roles within the group of companies that the Finance Company belongs to, with authorities and responsibilities defined by the board of directors. The chief executive officer or his equivalent is responsible for reporting significant transactions, major decisions and activities to the board of directors of the Finance Company.