The amended rules will give more responsibilities to each company’s board of directors, which will then need to check every business transaction valued at Dh5 million or more to ensure greater transparency.
The amendments on rules and regulations of corporate governance and institutional code of conduct were issued on Tuesday by Sultan bin Saeed Al Mansouri, Minister of Economy, who is also the Chairman of the Securities and Commodities Authority, or SCA.
The new rules, to be enforced from May 1, 2010, were first issued by the SCA in April 2007, for public awareness. A grace period of three years for its implementation will expire on April 30, 2010.
One amended rule stipulates total independence for the company’s external auditor from the influence of the board. The rules warn auditors against ‘certain practices’ in the course of their review of financial reports.
Listed companies will have to introduce an internal monitoring system of administration that would enjoy a certain degree of independence to perform its duties effectively under the direct command of the board under the new regulations.
The system is aimed at assessing the company’s risk management procedures and ensuring the appropriate implementation of the corporate governance principles, in addition to its continuous supervision to ensure the company is strictly abiding by the laws, rules and regulations, decree number 513 of 2009 issued by the minister said.
“The new amendments seek to boost the level of exposure and transparency by finding an internal monitoring system in public joint stock companies in line with the international financial markets,” it said.
“Any transaction will be regarded an essential financial transaction if it involves five per cent of the company’s paid capital or Dh5 million or its equivalent in foreign currency. Such transactions would be cross-checked by every member of the board of director, ensuring their independence,” it said.
The appointment and remuneration committee of the board of directors will have to draw up a policy on remuneration, entitlements, incentives and salaries of the board members and staff and review it annually to ensure that they are reasonable and performance-based.
First violators of the rules will be penalised with a warning letter and the company will be ordered to rectify the wrong doing. However, in the event of repeated violations, the company will either face a suspension from stock exchanges or fines that will not be more than the maximum amount stipulated by the law.