Strengthening Shariah Governance Procedures in Saudi Finance Companies
Contributes to the development of Islamic finance and defines the roles and responsibilities of the board of directors
Monday – 26 Shawwal 1442 AH – 07 June 2021 AD Issue No. [
Riyadh: Bandar Muslim
According to the information, the instructions include defining the roles and responsibilities of the board of directors, the Sharia committee, and senior management, and the principles of independence and confidentiality of information, in the desire of the Central Bank to strengthen the procedures of the Sharia government in these companies in a way that contributes to the development of Islamic finance in the Kingdom.
According to the new instructions, the objective is to enhance the work of the Sharia committees in the finance companies subject to the supervision of the Central Bank of Saudi Arabia and to ensure that the financing work is compatible with the provisions and principles of Sharia, and that the Board of Directors is expected to have a reasonable understanding of the principles and their wide application in Islamic finance, as well as the committee to have Shariah Sufficient knowledge of financial aspects in general and Islamic finance in particular to enable it to understand the legal issues presented to it, provided that these instructions apply to real estate financing companies, productive assets, small and medium enterprises, financing, credit cards and consumer financing.
It requires finance companies to set policies and procedures that organize the work of the committee and provide the Central Bank of Saudi Arabia with a copy of it. Sharia Supervisory Tasks.
The recent instructions obligate finance companies to disclose the CVs of all committee members on the company’s website so that stakeholders can judge their efficiency and ability to carry out their tasks effectively, and the board is primarily responsible towards business and to comply with the provisions and principles of Islamic Sharia in accordance with the committee’s decisions.
Among the responsibilities of the senior management, according to the new instructions, is to identify legal issues and refer them to the committee to obtain its decision, provide it with the necessary information and disclosures in a timely manner, and follow up on the implementation of decisions while providing continuing education and training programs for the main internal stakeholders, including the board, the committee, and employees with a taste for legal and financial issues.
As for Sharia supervision, the new instructions show that the task of Sharia compliance is the regular evaluation of the financing work carried out by the finance company in order to ensure their compliance with the provisions and principles of Islamic Sharia, and that a competent third party can be hired to carry out these tasks after notifying the Central Bank.
The committee members and its chairman are selected and appointed by a decision of the Board based on the recommendation of the Remuneration and Nominations Committee, after obtaining the Central Bank’s no-objection. The finance company can obtain the approval of the General Assembly to appoint the members if its internal policy includes that.
The committee bears responsibility for all its decisions related to Sharia issues, and the board must adopt with regard to issuing decisions regarding the finance company’s business, meeting regularly whenever needed, issuing decisions in a timely manner, and ensuring that operations are not affected by the difficulty of obtaining the committee’s decisions.