(MENAFN- Arab Times) Capital Market Authority (CMA) had recently issued the Corporate Governance Rules for the first time in Kuwait. Shedding light on the implications of the new rules, Managing Director and Head of Banking & Financial Services at Protiviti, Adnan Zakariya, stated that following the financial market failures and global banking crisis in the last few years there has been a call for greater transparency and disclosure within the financial sector and corporate world in general. This has resulted in the proliferation of regulations on better corporate governance and risk management. For Kuwait to remain competitive in the global markets, it must be seen to adopt the same or better standards than its competitors.
Practices
The need for the regulations has arisen from a wish to adopt the best practices currently applied in major global markets and to place Kuwait on a more level playing field with other markets e.g. Europe, USA and Singapore. The rules were in the pipeline for a few years to catch up with the major markets.
Adnan noted that all listed companies, banks and other CMA registered companies will be affected by the new CMA rules. The regulations listed are similar to those for large companies. Kuwait has many small companies to whom these regulations will apply and some of these entities are questioning if the full requirements are appropriate to the local market.
On the requirements of this rule, the expert said the corporate governance requirements are set out in 11 rules covering Board Composition and Meetings, Board and Senior Management Roles and Responsibilities, Qualifications and Remuneration of BOD members and Senior Management, Integrity of Financial Reporting, Risk Management and Internal Control Framework, Ethical Standards and Code of Conduct, Disclosure and Transparency, Protection of Shareholders' Rights, Corporate Values, Performance and Training of Board, Senior management and Employees and Corporate Social Responsibility.
The new rules usher in some very significant changes such as appointing independent directors who are suitably qualified and experienced and the requirement to have an Audit Committee, Remuneration Committee, Nomination Committee, Risk Management Committee and Corporate Governance Committee.
Establishing a Risk Management function and an Internal Audit function, restriction on the external auditors of the company from providing any other services to the company and requirement for the Audit Committee to verify and confirm that external auditors have not provided any services other than audit are some of the other key changes.
This will have to be done each year prior to appointment or re-appointment of the external auditors. The rules also include setting up whistle blowing policy and systems and implementing corporate social responsibility program.
The CMA will be able to undertake reviews of compliance via the annual reporting by independent consultants of internal controls. It has yet to be made clear by the CMA how it will monitor compliance other than through the reporting by external consultants on the internal controls on an annual basis.
To a question on how he envisages the new rules would impact the market, Adnan said the market will initially have to undertake a period of change but after this period of adjustment, the governance of regulated companies will be improved and a clear benchmark for governance standards set. Confidence in the Kuwait market for CMA regulated companies will increase.
The companies will be competing for obtaining the right new independent Board members. The requirement for appropriately qualified independent Board members will be difficult for the market to fill and it will be important for the CMA to monitor Board members and their qualifications to fulfill their role.
Roadmap
Further, he noted that Protiviti Corporate Governance experts are already working with their clients to help them implement the new rules in a structured manner. Some of the services include gap analysis with a roadmap to compliance, assisting with change management in individual companies following the development of the roadmap, and developing an enterprise risk management system for companies that do not currently have one.
Adnan has over 14 years of post-qualification experience in leading and performing internal audit and risk advisory engagements. Having extensively worked in Banking, Financial Services, Oil & Gas and Hi Tech Sectors, Adnan has been instrumental in developing a large Internal Audit & Risk Advisory practice catering primarily to Banking and Financial Services Sector for Protiviti in Kuwait Adnan's client portfolio includes Kuwait Finance House, Kuwait Investment Authority, and numerous large investment companies and banks in Kuwait.
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