Chapter Four: Formation, Appointment, and Membership of the Shariah Committee
Article 7: Formation of the Shariah Committee 1
The board shall form the Shariah committee and appoint its members, based on the recommendation of the nomination and remuneration committee, after obtaining SAMA’s written non-objection. The bank may obtain the approval of the general assembly to appoint the Shariah committee members if such is stated in the bank internal policy. The term of committee membership is three years. The committee shall be formed according to the following:
1. The number of its members must be proportionate with the size and nature of the bank business, provided that it is not less than three and not more than five.
2. The chairperson of the committee shall be an independent member.
3. The number of the independent members must not be less than two-thirds of the committee members. Independence of a committee member shall be invalidated in the following cases:
a) If the member owns five percent or more of the stock of the bank or one of its subsidiaries.
b) If the member is a representative of a corporate person who owns five percent or more of the stock of the bank or one of its subsidiaries.
c) If the member is a relative of any of the board members or senior executives in the bank or in one of its subsidiaries.
d) If the nominated member is a board member in one of the bank’s subsidiaries.
e) If the member is currently an employee, or used to be an employee during the past two years, of the bank, of a party that deals with the bank, or of a subsidiary, e.g. an accounting auditor or a main supplier, or held a controlling interest in any of these parties during the past two years.
f) If the member has a direct or indirect interest in the business and contracts executed for the bank.
g) If the member receives financial consideration from the bank in addition to the remuneration for their membership in the committee.
h) If the member has a credit relationship with the bank (credit cards, credit facilities, guarantees, etc.), under his name or the name of a relative, in excess of three hundred thousand Saudi riyals.
i) If the member engages in a business that would compete with the bank or conducts businesses in any of the bank's sub-activities.
j) If the member served for more than six consecutive years or nine nonconsecutive years as a member of the committee.
k) The business and contracts that serve a personal interest of a committee member, which requires a license from the ordinary general assembly, shall not be considered as interest invalidating independence of that committee member if such business and contracts are carried out according to the same terms and conditions adopted by the bank with all contractors and customers and are part of the bank’s usual activities unless the nomination and remuneration committee of the board deems otherwise.
If independence of any member is invalidated for any reason, the bank shall notify SAMA within five business days.
4. The bank shall not appoint any member of its committee from a Shariah Committee of another bank operating in Saudi Arabia. This is to ensure that the committee member would be more focused, avoiding conflict of interest, and maintaining the confidentiality of information.
5. The bank shall include a confidentiality clause in the contract or terms of appointment of the committee members to maintain the confidentiality and secrecy of the bank’s information.
6. Upon resignation/expiry of the term of membership of any committee member for any reason, the bank must notify SAMA in writing within five business days. The resigning member shall submit his resignation, along with his reasons, to the board with a copy to SAMA. Membership of a committee member may not be terminated before the expiry of its term except with an acceptable justification.
1 The article is for guidance and will be enforced starting from 01/01/2023.
Article 8: Membership of the Shariah Committee
The committee members shall be properly qualified to carry out the duties assigned to them. They shall have a clear understanding of their tasks and responsibilities and be able to exercise sound judgment with objectivity. These members shall also possess various professional, practical and administrative skills as well as experience in Shariah and financial matters. They shall have appropriate personal qualities, especially honesty and commitment in addition to a high degree of good reputation, competence and responsibility.The effectiveness of the committee depends on the experience and ability of its members to judge comprehensively as well as their participation in the committee’s discussions and familiarity with the topics raised before making any related decision. Moreover, a member's qualifications should include the following:
■ Leadership: A Committee member should have leadership skills and be able to grant powers that lead to stimulating performance, applying best practices in the field of effective management, and adhering to professional values and ethics.
■ Independence: It is the ability of a committee member to be impartial and objective in making a decision without any influence from the management or from other external entities.
■ Competence: This is reflected by the level of education, training, skills, and the desire to continue learning as well as the diversified experience of at least five years in various fields, including Islamic banking, compliance, and Shariah audit of financial transactions.
■ Shariah and financial knowledge: A member should have adequate Shariah knowledge in addition to the ability to read and understand financial statements and reports.
Article 9: Shariah Committee Meetings
1. The committee shall hold meetings on a regular basis, and whenever the need arises, to exercise its duties effectively and to ensure that the bank’s operations are not adversely affected by the difficulty in obtaining the committee’s decisions on Shariah matters that are referred to it.
2. The committee meetings shall be held periodically, at least once every three months.
3. For a committee meeting to be valid, it shall be attended by the majority of the members. The resolutions shall be adopted by the majority of votes of the attending members. In the case of a tie, the vote of the committee's chairperson shall prevail.
4. A committee member is expected to contribute to meetings and allocate sufficient time and effort to discharge their duties effectively. The member must attend at least (75) percent of the committee meetings held during the fiscal year.
5. The meetings shall be documented and minutes of meetings shall be prepared, including the discussions and deliberations. The committee’s decisions and voting results shall be documented and kept in a special and organized record. Names of the attending members shall be stated along with their objections (if any) and their reasons. All attending members shall sign the minutes of meetings.