Chapter I Definitions and General Provisions
1. Definitions
The following terms – whenever they occur in these Principles – shall have the meanings assigned thereto unless the context requires otherwise:
Term Definition SAMA Saudi Central Bank*. Financial Institution An entity subject to the control and supervision of the Central Bank. Board The Board of Directors of the financial institution. Executive Management (Senior Management) Persons entrusted with managing the daily activities of the financial institution, and proposing and implementing strategic decisions. Member A member of the Board or any of its committees. Executive Member A full-time member of the executive management of the financial institution, who participates in managing its daily activities. Non-Executive Member A member who is not a full-time member of the executive management of the financial institution and who does not participate in performing its daily activities. Independent Member A member who has complete independence in his position and decisions, and who shall not be subject to the following factors affecting independence, to name but a few:
a. if he holds 5% or more of the shares of the financial institution or any other company within its group, or is a relative of a person who owns such percentage; b. if he is a relative of any member or senior executive of the financial institution, or any other company within its group; c. if he is a member of any company within the group of the financial institution for which he is nominated to be a member; d. 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. e. if he has a direct or indirect interest in the businesses and contracts executed for the benefit of the financial institution; f. if he receives financial consideration from the financial institution in addition to the remuneration for his membership of the Board or of any of its committees that exceeds an amount of SAR 200,000 or 50% of his remuneration of the last year for his membership of the Board or any of its committees, whichever is less; g. if he engages in a business where he competes with the main business activity of the financial institution, or if he conducts business in any of the activities practiced by the financial institution; h. if he served for more than nine years, consecutive or inconsecutive, as a member of the financial institution. i. If he has a credit relationship, in his name or in the name of any of his relatives, with the financial institution that exceeds SAR 1,000,000. Relatives Fathers and mothers; grandfathers and grandmothers; children and grandchildren; and husbands and wives. Substantial Shareholders Any person who owns 5% or more of the shares of the financial institution or voting rights therein. Related Parties a. Substantial shareholders in the financial institution; b. Board members of the financial institution or any of its affiliates and their relatives; c. Senior executives of the financial institution or any of its affiliates, and their relatives; d. Board members and senior executives of substantial shareholders of the financial institution; e. Establishments – other than companies – owned by a member or a senior executive, or their relatives; f. Companies in which a member or senior executive or any of their relatives is a partner; g. Companies in which a member or senior executive or any of their relatives is a member of their Board or a senior executive thereof; h. Joint stock companies in which a member or senior executive or any of their relatives owns 5% or more, subject to the provisions of Paragraph (d) of this definition. i. Holding companies or affiliates of the financial institution. Stakeholder Any person who has an interest in the financial institution, including shareholders, investors, customers, and suppliers. * The Saudi Arabian Monetary Agency was replaced by the name of "Saudi Central Bank" in accordance with The Saudi Central Bank Law No. (M/36), dated 11/04/1442H, corresponding to 26/11/2020G.
2. General Provisions
a. These principles aim to set the minimum requirements that would enhance the effective management of financial institutions, direct their financial and non-financial resources towards achieving their strategic objectives, maintain their stability, and preserve the rights of stakeholders.
b. An effective governance system requires independence of and separation between the position of the Chairman of the Board of Directors and that of the Chief Executive Officer (CEO). This would require good organizational and administrative structures and explicit powers and responsibilities among the main parties of the financial institution, including members and executives, in addition to establishing a general framework for control through a risk management department, an internal audit department, and a compliance department, as well as internal control systems and an external auditor.
c. These principles shall not prejudice the requirements imposed on financial institutions under other relevant laws, regulations, and instructions.
d. SAMA has issued several regulations related to governance; these principles shall be read alongside these regulations, as the case may be, including the following:
• Principles of conduct and business ethics in financial institutions;
• Principles of compliance for commercial banks operating in the Kingdom of Saudi Arabia;
• Requirements for appointment to leadership positions in financial institutions that are under the supervision of the Central Bank;
• Shariah-compliant governance framework for local banks operating in the Kingdom; and
• Sharia-compliant governance instructions for finance companies.
e. Corporate governance has received international attention, as a number of international agencies and organizations have issued guiding instructions for governance. These agencies and organizations include the following, among others:
• Basel Committee on Banking Supervision (BCBS);
• Organization for Economic Cooperation and Development (OECD);
• Islamic Financial Services Board (IFSB);
• The World Bank (WB); and
• Committee on Payments and Market Infrastructure (CPMI). 3. Scope of Application
a. These principles shall apply on a mandatory basis for local banks, finance companies, and real estate refinancing companies.
b. Subject to the mandatory provisions stipulated in relevant laws and regulations, these principles shall apply as guiding rules to credit information companies, payments and financial technology companies, money exchange companies and institutions1, consumer microfinance companies, finance support companies, financial lease contract registration companies, and debt-based crowdfunding companies. The Central Bank may, at any time, enforce all or some of the provisions of these principles on a mandatory basis.
1 The provisions contained in "the Governance Controls of the Money Exchange Sectors" shall apply to money exchange companies and institutions on a mandatory basis.