1. General Requirements
1.1 Background
These Banks Remuneration Rules shall supersede the existing Rules on Compensation Practices issued vide circular no. 26194/BCS/12580 dated 3 May 2010. Saudi Central Bank (SAMA) has updated these rules for the purpose of addressing the risk of misconduct that may be associated with improper reward practices.
1.2 Objective
The objective of these rules is to set the minimum requirements and provide supervisory guidance to banks in formulation of their policies, procedures and practices on remuneration to ensure financial soundness and promote effective risk management.
These rules are aimed at dealing with risks posed by the remuneration practices, and not at determining the absolute amount of remuneration, which will continue to be determined by banks in line with their remuneration policies. However, banks shall comply with the regulatory caps on remuneration, if any, as specified by SAMA or any other regulatory authority.
1.3 Scope of Application
These rules shall apply to banks as follows:
1. All locally incorporated banks licensed and operating in Saudi Arabia.
2. Where a locally incorporated bank has majority owned subsidiary(ies) operating in the financial sector, it will either formulate group level Remuneration Policy and practices consistent with these rules for application across the group or will ensure that the subsidiary’s Remuneration Policy and practices are in line with these rules.
3. Where a locally incorporated bank has majority owned subsidiary(ies) outside Saudi Arabia, it will ensure that the Remuneration Policy and practices of such subsidiary or branch are in accordance with these rules provided that there is no inconsistency with the legal and regulatory requirements of the host country.
4. Foreign Banks Branches (FBB) licensed and operating in Saudi Arabia shall also follow these rules in designing their Remuneration Policy and practices for Saudi operations, taking into consideration the following:
a. The responsibilities of the Board of Directors, relative committees and General Assembly stated in these rules should lie with the authority responsible for overseeing the business and operations of the FBB at the Head Office/Regional Office.
b. Minimum percentages required in clause number 40 of these Rules shall not be applicable.
1.4 Effective Date
These updated rules shall come into force starting from 1 June 2023, and all banks shall take necessary measures to ensure compliance thereof. Banks shall also ensure that all employment contracts including contracts already in force at time of issuance of these updated rules are consistent with the rules by 1 June 2023.
1.5 Definitions
SAMA: Saudi Central Bank.
Rules: Banks Remuneration Rules.
Senior Management: The functions, roles and responsibilities entrusted to those positions who take, propose and implement strategic decisions and manage the Financial Institution’s business processes including senior management positions that requires SAMA’s non-objection for appointment.
Control Functions: Those functions that have a responsibility independent from management to provide objective assessment, reporting and/or assurance including risk management function, compliance function, and internal audit function.
Misconduct: Conduct that falls short of expected standards, including legal, professional, internal conduct and ethical standards.
Remuneration System: Bank’s internal remuneration policies and procedures including structure, roles and controls of the remuneration and the actual implementation and application thereof by the bank.
In-year adjustment: Downward adjustment of an anticipated annual variable remuneration award to reflect the impact of a negative event or behavior.
Malus: Permits the bank to reduce the value of all or part of deferred remuneration based on ex post risk adjustment before it has vested.
Clawback: Under this process the individual has to return ownership of an amount of variable remuneration paid in the past or which has already vested to the bank under certain conditions.