Banks Remuneration Rules

Supervisory Review 60. Banks are expected to use these rules in identification and assessment of risks arising out of remuneration policies and practices as part of its Internal Capital Adequacy Assessment Plan (ICAAP) and Internal Liquidity Adequacy Assessment Plan (ILAAP) . 61. In case of material deficiencies from these rules or from the bank’s policies, SAMA could direct the concerned bank for rectification of deficiencies and may also prescribe increased capital or liquidity requirements for such bank. SAMA may also impose penalty or any other necessary measures in case of serious violations. 62. If needed, SAMA may limit a bank’s total variable remuneration as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital or liquidity base or with sound risk management practices. In addition, SAMA may also impose certain limits and constraints on bank’s remuneration structure, forms and deferment. Appendix-I: Coverage of the Compliance Report The report should cover all actions taken by the bank to comply with SAMA rules or other related regulations. It should contain at a minimum the following information: 1. Composition of the Nomination and Remuneration Committee including the names, qualification, status (whether shareholder, independent, non-executive) and terms of reference of the Committee; 2. Confirmation to the effect that the bank has formulated a Remuneration Policy for Senior Management with the approval of the General Assembly, and a Remuneration Policy for all other employees approved by the Board of Directors. The policies should be annexed with the report; 3. Confirmation to the effect that all employment contracts negotiated or renegotiated after issuance of SAMA’s rules are compliant with these rules. Also information regarding the number of contracts, if any, which were in force at the time of issuance of SAMA rules but are still non-compliant with these rules along-with the reasons thereof and the timeline for their regularization; 4. Details of the measures taken to ensure compliance with these rules by the bank’s subsidiaries and the name and location of all such subsidiaries and branches to which these rules have been applied; 5. Categories of employees and their number to which the measures taken to implement SAMA rules apply. Such categories of employees should, inter-alia, include senior management, employees engaged in risk taking activities as defined in the Remuneration Policy, employees working in control functions, other employees of the bank and outsourced employees/service providers (engaged in material risk taking activities on behalf of the bank, if allowed under the SAMA’s Rules on Outsourcing ). Definitions for each category of those employees should be provided as well in detail; 6. Listing down the material changes to date in the remuneration practices of the bank/subsidiaries since implementation of these rules. Each of these changes should be elaborated with supporting information; 7. Description of / reference to the disclosures made in the bank’s Board of Directors Annual Report with regard to risk management framework, internal controls and Remuneration Policy and practices; 8. Confirmation to the effect that the bank has established appropriate compliance arrangements by seeking commitment from their employees not to use personal hedging strategies or remuneration - and liability - related insurance to undermine the risk alignment effects embedded in their remuneration arrangements; 9. Any unexpected issues that have been encountered to date in the implementation of these rules should be enumerated; 10. Details of the steps planned for the next half-year for further refinement of the remuneration practices.