UAE Vs Bahrain – Corporate Governance framework for Banks, an attempt to compare

The framework for Corporate Governance as applicable to Banks in the UAE and Bahrain differs quite significantly. However ‘best-practice’ guidelines are the same the world over and accordingly most of the key requirements and principles are included as part of either rule or guidance in both these countries.

Bahrain

The framework in Bahrain appears to be more detailed and elaborate. Rules and guidelines for Corporate Governance are contained in the Central Bank of Bahrain (‘CBB’) rulebook under the relevant ‘High Level Controls’ or ‘HC’ Module. However, the CBB in its rulebooks has established separate HC modules depending on the type of business of a licencee. Accordingly, separate rulebooks (and HC Modules) exist for Islamic Banks and Conventional Banks, There are even separate rulebooks for Investment Firms, Insurance companies etc. Thought it must be said that the Corporate Governance requirements are substantially similar with some differences depending on the type of business entity.

The requirements included in the HC modules are split between ‘Rule’ and ‘Guidance’ with a ‘Comply or Explain’ principle for the ‘Guidance’ parts. Accordingly, all Rulebook content that is categorised as ‘Rule’ must be complied with. For other parts of the which are categorised as ‘Guidance’, every conventional bank is expected to comply with the recommendations, or explain its noncompliance in the Annual Report.

Listed entities are required to follow the Code of Corporate Governance of the Kingdom of Bahrain as well as the requirements included in Volume 6 of the Rulebook Module HC – which is to a large extent also based on the principles in the Code.

UAE

The situation in the UAE differs. For one, if the entity is listed on the DFM or ADX, it is bound to follow the Corporate Governance Code as issued by the Securities and Commodities Authority (SCA). This Code does not apply to Central Bank regulated entities (among others).

However for Central Bank licenced entities, the first major guideline which Banks were bound to implement was contained in Circular 23/00, containing binding recommendations for corporate governance structures in banks (the Central Bank Rules).

Subsequently the Central Bank of the UAE also issued Corporate Governance Guidelines for UAE Bank Directors to serve as an information pack and guidance. However these requirements do not appear to be mandatory.

Considering that most Banks are listed, a typical Bank would be required to comply with the requirements of the Corporate Governance Code as issued by the SCA as well as Circular 23 and Guidance to the UAE Bank directors.

A summary of the key requirements as applicable to Banks in the UAE as compared to the requirements in Bahrain will be explored in another blog post.

(The above attempt at comparing the Corporate Governance frameworks in both countries is based on publicly available information and my personal interpretation. I look forward to further reader comments to enhance the facts and if so, make it more accurate. The above is also published on my blog.)

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