New UAE Corporate Governance Regulations

Companies and institutions whose securities are listed on the "on-shore" financial market in the UAE ("Company", jointly "Companies") are regulated by the Securities and Commodities Authority ("SCA"). The Board of Directors of the SCA recently issued a "Circular Concerning Certain Matters Relating to Corporate Governance" ("Circular") which introduces mandatory requirements for companies listed on UAE financial markets. This article analyses and comments on the Circular.

Who needs to know about the circular?

Companies listed on the Dubai Financial Market and the Abu Dhabi Securities Exchange, their directors and managers, auditors and advisors need to know about these new requirements mandated by the Circular.

Binding nature of the circular

To begin with, the Circular has legal force, and as such can be enforced by the SCA acting in exercise of its powers to regulate capital markets in the UAE. The Circular is ancillary to Ministerial Resolution No 518 of 2009 Concerning

Corporate Governance Rules and Corporate Governance Standards issued by the Board of Directors of the SCA on 29th October 2009 ("2009 Resolution"), and for that reason our view is that it is binding on the Companies.

Consequently, the SCA, acting in exercise of its wide authority when it comes to capital markets in the UAE, can and will enforce the requirements of the Circular.

Mandatory annual corporate governance report

The 2009 Resolution imposes an obligation on the Board of Directors of a Company ("Board") to prepare a corporate governance report on an annual basis to ensure efficiency of the internal control system in the Company and its subsidiaries ("Report").

In accordance with the 2009 Resolution, the Company is required to arrange that the Report be signed by the chairman of the Board and filed with the SCA on annual basis or upon its request during the accounting period covered in the Report or for a subsequent period up to the publication date of the Report, which shall cover all information and details in the form specified in the Circular that requires the following inclusions:

Requirements and principles of implementation of corporate governance system and approach to their application, adopted by the Company; Details of any violations committed by the Company during the financial year, reflecting their causes as well as the method of remedy and avoidance of future occurrence; and Method of formation of the Board in terms of member classes, terms of...