Article 16: Internal Control

No: 41042498

Date(g): 12/2/2020 | Date(h): 18/6/1441

Effective from Aug 09 2020 - Aug 08 2020
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First: Shariah Compliance:

The Shariah compliance function refers to the regular assessment of the bank’s Islamic activities and operations to ensure that they are Shariah compliant. This function includes:
1.	Ensuring of the bank’s level of compliance with the Shariah principles and rules, the corrective actions to resolve non-compliances, and the control mechanisms to avoid recurrences.
2.	overall Islamic banking operations at the bank, including the development process of Shariah-compliant products, which starts from product structuring to product offering to customers (See Chapter Nine of this framework).

Second: Shariah Non-Compliance Risk Management:

The systematic approach of managing Shariah non-compliance risks will enable the bank to continue its Islamic banking operations and activities effectively without exposing the bank to unacceptable levels of risk. Risk management involves systematically identifying, measuring, monitoring and managing Shariah non-compliance risks to reduce potential cases of non-compliance, taking into account that:
1.	The Shariah non-compliance risk management function shall be considered as part of the bank's integrated risk management framework.
2.	Due to the technicality and complexity in managing the risk of non-compliance to the Shariah principles and rules, the function shall be performed by risk officers that have suitable qualifications and experience in the subject matter.

Third: Internal Shariah Audit:

The Shariah audit function refers to the independent assessment conducted to provide objective assurance in order to add value and improve the degree of compliance in relation to the bank’s Islamic operations and activities, with the aim of ensuring a sound and effective internal control system for Shariah compliance. Additionally, the following should be taken into account:
1.	Internal Shariah audit on areas of relative importance shall be conducted at least once a year depending on the risk profile of the bank. Shariah audit may be conducted as part of the bank’s audit on specialized areas, according to the risk level and materiality of the impact of Shariah non-compliance in these areas.
2.	The board audit committee shall determine the deliverables of the internal Shariah audit function after consulting with the Shariah committee. These deliverables shall be in line with accepted auditing standards.
3.	The Shariah audit function shall be performed by internal auditors who have acquired adequate Shariah-related knowledge and training. In addition, the internal auditors may engage the expertise of the bank’s Shariah officer in performing the audit, as long as the objectivity of the audit is not compromised.
4.	The findings and observations of the internal Shariah audit shall be submitted to both the board audit committee and the Shariah committee.