The board amended the regulations concerning listing and trading commodities and commodity contracts and approved fit and proper criteria for customers.
The board issued a directive to start the pilot implementation of the electronic voting system for shareholders in a sample of listed companies.
The board of the Securities and Commodities Authority (SCA) held its 12th meeting, chaired by H.E. Eng. Sultan bin Saeed Al Mansoori, Minister of Economy and Board Chairman, in Dubai. The meeting discussed initiatives aimed at developing securities-related services and activities in line with the best international standards and practices and addressed key issues facing the securities sector. The board reviewed developments taking place in this sector and examined a report on the implementation of the decisions and recommendations made at the previous meeting, held in December, and the recommendations and projects that will help to boost the performance of the country’s financial markets.
Adoption of a “Guide to Institutional Discipline Standards and Governance of Public Joint-Stock Companies”
As part of its efforts to enhance the supervisory and legislative regimes and bring them at par with the best international standards and practices on the development and regulation of the securities sector, the board adopted a “Guide to Institutional Discipline Standards and Governance of Public Joint-Stock Companies”, a move also aimed at improving the governance of public joint-stock companies by developing a legal, organized, clear and effective framework to regulate corporate affairs; ensure the rights of stakeholders; promote SCA’s supervisory role; and determine the responsibilities of the board of directors and the executive management while ensuring sufficient market transparency and neutrality.
The guide was prepared by SCA’s management in line with the best international practices. Among its most prominent features is the incorporation of new standards and requirements that take into account the environmental, social, and governance (ESG) principles. The guide was co-developed by a think tank and presented to major corporations operating in this field. A copy was posted on SCA’s website to get industry feedback, which will be incorporated in the guide’s final version, where appropriate.
During the meeting, the board reviewed a comparison of the SCA Board Chairman’s Decision No. (7/Chairman) of 2016 concerning Institutional Discipline Standards and the Governance of Public Joint-Stock Companies and this guide whose key features include:
- The obligation to appoint a secretary on the board of directors. Requirements for filling this position and the functions of the secretary are to be stipulated under Article 8.
- The obligation that the majority of board members should be independent, non-executive (stipulated under Article 9(5)).
- Bringing more clarity to the mechanism through which the interests of new board members are disclosed through the submission of a Declaration of Interest form upon assuming position (stipulated under Article 11).
- The introduction of proper and fit criteria for board members (stipulated under Article 18).
- Bringing more clarity to the process through which conflict of interest is handled (stipulated under Articles 32-38).
- The development of a new approach to management through the (optional) adoption of the dual governance structure (stipulated under Articles 53-56). Under this approach, two board committees are formed: an executive committee charged with the direct oversight of the executive management of the company and a supervisory committee that supervises the work of the board, the executive committee, and the company’s management.
- Bringing more clarity and detail to the risk management procedures through the (optional) formation of a permanent committee that is in charge of handling risks pursuant to Article 62 and Articles 65-72.
- The introduction of provisions that give the board the authority to create a technical committee for the purpose of assisting it in discharging its supervisory responsibilities when it comes to the role of technology in executing the company’s business strategy (stipulated under Article 63).
- Bringing more clarity to governance-related disclosures (stipulated under Articles 73-77).
- The introduction of provisions that regulate the governance of subsidiary companies (stipulated under Article 78).
- The introduction of provisions that regulate corporate social responsibility (stipulated under Article 80).
When adopting the draft guide, the board indicated that there will be no ownership ceiling for those wishing to appoint any of the representatives appointed by the company and that companies will be given a grace period until the end of 2020 to implement the new amendments, adding that it will consider the extension of the period whenever is necessary on a case-by-case basis.
Fit and proper criteria for customers
The board approved a draft decision on the fit and proper criteria, which are the information that the licensing entity must obtain from each customer, with the exception of qualified investors, prior to the execution of any transaction. This is done by measuring the customer’s investment objectives, financial position, solvency, and experience, all of which will enable the licensing entity to determine whether investments are suitable and appropriate for customers. SCA’s management presented the draft to major corporations operating in the field and posted a copy on its website to get feedback.
The board also reviewed industry feedback on the draft and the comments that SCA incorporated in the final wording of the regulations. The regulations include ten articles entitled Definitions, Scope of Application, Fit Criteria, Fit Report, Licensor Obligations, Proper Criteria, Proper Report, Licensor Obligations, Penalties, and Term.
Amendment of the regulations concerning listing and trading commodities and commodity contracts
Keen to improve the legislation governing financial markets operating in the country and to continuously review the regulations and legislation governing securities trading to ensure that they keep pace with the developments in world markets, the board approved a proposal to amend the SCA Board’s Decision No. (157/R) of 2005 on the Regulations Concerning Listing and Trading Commodities and Commodity Contracts, exempting foreign commodity brokerage companies from some requirements, including those related to the submission of reports on financial statements, segregation of accounts, and adequacy.
The amendment was proposed due to the difficulty facing foreign commodity brokerage companies in adhering to the requirements related to the submission of such reports. This is because they must adhere to other supervisory requirements that are similar, but different in the mechanism of implementation, in addition to the fact that they originally fall under the supervision of similar supervisory authorities in their homeland. This exception is only made for foreign companies that are supervised by similar authorities that impose similar requirements in their homeland, provided that they are either an ordinary or an associate member of the International Organization of Securities Commissions (IOSCO). This move is aimed to ensure that supervisory cooperation is provided when needed.
Voting at general meetings by electronic means
Pursuant to directives made at a previous meeting, the board reviewed a memo prepared by the management on the administration of a questionnaire about electronic voting together with the results of the questionnaire (administered to 124 listed companies and 2010 active investors in the past 12 months). Accordingly, it has been decided to commence the pilot implementation of the electronic voting system in three major companies and banks and one insurance company to identify the challenges that may arise.
The board also reviewed a report about the challenges and obstacles facing market makers and the actions and recommendations proposed to have them play a more effective role. It also reviewed the directives previously made following meetings with financial markets being responsible for providing an appropriate environment for financial institutions operating as market makers.
The board reviewed a memo about increasing the number of Emiratis in public joint-stock companies operating in the real estate sector and was briefed on a report on the financial analysis of listed public joint-stock companies and the sectors at the Abu Dhabi Securities (ADX) and the Dubai Financial Market (DFM) for the third quarter of 2019.