| 6.1 | Banks should have clear governance structure in terms of the role of the Board of Directors and Senior Management. In addition, banks should have a clear internal controls and audit procedures in terms of protecting the interests of depositors and other stakeholders.
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| 6.2 | The Board of Directors of a bank is ultimately responsible for the oversight of the bank’s investments. The Board or its delegated authority is responsible for approving the internal Investment Policy and Strategy. For Foreign Banks Branches (FBB), the responsibilities of the Board of Directors lies with the authority responsible for overseeing the business and operations of the FBB at Head Office/Regional Office.
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| 6.3 | Banks should have a committee at management level that will be held responsible and accountable for investment decisions including the approval and allocation of funds, risk assessment, setting investment limits and insuring that the bank’s investments are in-line with its Investment Policy.
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| 6.4 | Banks’ Investment Policy should include, but not limited to, the following:
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| | ■ | Governance requirements including setting controls, responsibilities, and delegation of authority.
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| | ■ | Investment eligibility criteria.
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| | ■ | Prudential exposure limits taking into consideration minimum capital, liquidity and reserve requirements set by SAMA.
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| | ■ | Terms regulating the bank’s local and international investments by setting investment limits in-line with the bank’s core business activity, strategy, risk tolerance, risk profile, market and macroeconomic conditions which include but not limited to setting the following limits:
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| | | - | International investments (Local/foreign currency) to total investments
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| | | - | International investments (Local/foreign currency) to total regulatory capital (Tier 1 + Tier2)
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| | | - | Total investments / Total Assets
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| | ■ | Guidelines to handle active/passive breaches to an investment limit or any fraudulent activity.
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| | ■ | Criteria on eligible counterparties for dealing/trading as well as the proper counterparty limits.
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| | ■ | Guidelines that include valuation of the portfolio, waterfall-pricing system and consistent portfolio calculation performance and reporting systems.
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| | ■ | Systems for management of various risks and internal controls.
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| | ■ | Data keeping requirements.
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| 6.5 | Banks should develop a clear, robust and demonstrable set of procedures, monitoring tools, governance and contingency plans to enable them to proactively identify any potential difficulties and risks, investigate the drivers and act in a timely manner to mitigate potential investment losses and report to the bank’s senior management and SAMA if needed.
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| 6.6 | Banks Investment Policy and procedures should be reviewed at least every three years or more frequently if the bank deems it necessary based on the changes in the relevant regulatory requirements or business practices.
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| 6.7 | Banks Investment Policy and procedures should adhere to the investment requirements in the Banking Control Law and all relevant regulations.
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| 6.8 | Banks should have a strategy for their investments that articulates in a clear and concise manner the bank’s approach and objectives, including establishing quantitative investment targets /goals and how to achieve them over a realistic timeframe.
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| 6.9 | Banks Investment Strategy should take into consideration the credit risk (Sectoral, Geographical, Settlement, etc.), market risk (volatility, interest rate including Interest Rate Risk in the Banking Book (IRRBB), FX, etc.), Operational risk (errors, frauds), liquidity risks, concentration risk and any other applicable risks.
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| 6.10 | Banks should oversee the implementation of the Investment Strategy and ensure that it remains appropriate in relation to the bank’s size, complexity, geographical footprint, business strategy, markets and regulatory requirements.
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| 6.11 | Banks should have an operational guidelines detailing how the investment strategy will be implemented. This should include clearly defining and documenting the roles, responsibilities, formal reporting lines and individual (or team) goals and incentives geared towards reaching the targets in the Investment Strategy.
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| 6.12 | Banks should put in place mechanisms to monitor the operational guidelines effectiveness and its integration into the bank’s risk management framework.
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