10. Product Governance
SAMA emphasises that banks ensure compliance with relevant regulations and instructions pertaining to new products and services when considering PSIAs.
10.1 Terms & Conditions
The terms and conditions of a contract for a PSIA must be clear, concise and easily understandable by an IAH. The contract must state the type, purpose, terms and period of the contract and the profit-sharing ratio agreed at the time of the opening of the account. A bank must ensure that the following information is included in the terms and conditions given to an IAH:
a. How the funds of the IAH will be managed and invested;
b. The PSIA’s investment objectives;
c. The basis for allocating profits and losses;
d. A summary of the policies for valuing the PSIAs assets
e. If the bank uses PER/IRR reserves as a smoothing technique, a summary of the policies for transferring funds to and from the reserve
10.2 Contract Form
The following must be stated in the contract:
a. the rights and liabilities of both parties—in particular, the circumstances where losses are to be borne by the IAH;
b. the implications on the IAH’s contractual rights with regard to the early withdrawal, early redemption or other exit;
c. the duty of the bank to disclose accurate, relevant and timely information to the IAH on the investment of funds, including its performance, investment strategies, valuation, and frequency of valuation of the PSIA’s assets;
d. how any losses incurred as a result of negligence, misconduct, fraud or breach of contract on the part of the bank will be dealt with;
e. how any subsequent changes in the profit-sharing ratio will be disclosed;
f. any smoothing techniques that the bank uses
g. whether or not zakat is paid on behalf of the IAH by the bank