Aafaq Islamic Finance PSC maintains and delivers high standard Corporate Governance under Sharia Compliance through its Board of Directors. The foundation of Aafaq’s long term success is its prudent corporate governance practices and by delivering value to its shareholders and stakeholders. The board ensures the company’s integrity, professional and regulatory conduct are continuously upheld to support Aafaq’s pursuit of achieving long-term and sustainable value for its shareholders. With stringent corporate governance practices and regulations, the framework is supported by right culture, values and behaviours across the entire organization including board levels. A clear organizational structure is maintained with well-defined accountabilities, responsibilities, and robust internal control and risk management mechanisms.
The Board continuously explores improvement opportunities to the Company’s governance processes on an annual basis. Applicable incremental changes are deemed necessary, ensuring the governance framework meets the requirement of Aafaq’s continuously expanding business portfolio; thereby ensuring the company’s achievement of long-term and sustainable values are consistent.
Corporate Governance Policy
aafaq has developed a Corporate Governance Policy which outlines key corporate governance principles adopted by the Board of the Company. It defines responsibilities of the Board, Chairperson, Directors and the Chief Executive Officer. The company seeks to specify the role of each party enabling clear segregation of duties in everyday management of Aafaq’s business and operations.
The policy also defines and outlines the relationship between the board and the management which involves high performance with integrity. This is undertaken through discussions where performance indicators are executed and achieved by the management according to the set and agreed shareholder’s expectations. The performance and progress of the team is reviewed by the Board at specified intervals to ensure the planned expectations on target are met. In case, the targets are not met, further remedial measures are implemented in order to achieve Aafaq’s expectations.
Roles and Responsibilities of the Board
The Board leads and governs the Company efficiently and effectively by executing their roles and duties with integrity, honesty and professionalism in interest of the law to serve the Company’s shareholders and stakeholders; thereby ensuring the firm’s high standard adherence to corporate governance. The role of the Board is to direct the Company both as to strategy and to ensure that the Company has adequate systems of internal controls, both operational and financial. The Board has the following key responsibilities:
• Act with integrity at all times, exercising their Duty of Care and Duty of Loyalty in the best interests of the Company.
• Ensure effective control over the Company’s entire business. Members of the Board must ensure that the Company has a robust corporate governance policy commensurate with AIF’s risk profile.
• Responsible for approving and overseeing implementation of the strategic objectives of the Company and its risk management function, compliance function and internal and external audit.
• Forming the organizational structure of the Company including specifying key responsibilities and authorities of the Senior Management; reviewing and approving any change in structure related to reporting lines.
• Overseeing Senior Management to ensure that the Company’s activities are carried out in a manner consistent with the resolutions, strategy, framework and policies approved by the Board.
• Specify selection criteria to qualify persons to be appointed to the Board.
• Select, solicit and recommend to the General Assembly for approval of such qualified persons for appointment to the Board.
• Submit recommendation for each Director’s annual compensation within the limits set by the Company’s Articles of Association to the Chairman for approval.
• Establish Board Committees as appropriate, including their members, and define such Committee’s authorities, roles and responsibilities, and compensation, if any. The Board shall review the performance of any such Committees at least annually.
• Select, define the role and responsibilities of delegate authority to evaluate the performance of, determine the compensation of, and, if needed, recommend replacing, the Company’s CEO.
• Prepare a succession plan for the Company’s CEO.
• Review and approve the Company’s vision, mission statement, corporate strategy, business plan(s), and annual budget, which shall be proposed and presented by the Company’s CEO & CFO.
• Review and propose the Company’s dividend and reserves to AGM.
• Review and approve the annual audited financial statements of the Company.
• Review and approve any Company borrowings or programs, including letters of guarantee, credit lines or facilities, which shall be proposed and presented by the Company’s MD/CEO.
• Review reports of the Board’s Committees, as needed.
Appointment, Retirement and Re-Election
According to the Aafaq’s memorandum and articles of association, all Directors are required to seek re-election by shareholders every three years, and one-third of the Board must seek re-election on an annual basis.
Segregation of duties between Chairman and CEO
The roles of the Chairman and the Chief Executive Officer are distinct and separate, with a clear division of responsibilities. The Chairman leads the Board and ensures the effective engagement and contribution of all directors. The Chief Executive Officer has responsibility for all Aafaq’s business operations, including setting of the strategy, policy and operational management, and he acts in accordance with the authority delegated by the Board.
All directors participate in discussion of Aafaq’s strategy, financial and operational performance and risk management, either in Board meetings or in the Board Committees on which they serve. All such meetings are structured to allow open discussion and accountability.
The Board establishes the rules relating to administrative, financial and employee matters; displays requirements for carrying out Board business and meetings; and mandates the roles and responsibilities of Board members.
Access to Information and Advice
Prior to each Board Committee meeting, Directors are provided with complete and relevant information concerning financial performance, updates on corporate development, business progress, risk, compliance and proposals. The Board is given sufficient time to evaluate the reports and proposals and if necessary, request additional information. This enables the Board to discharge its responsibilities effectively. The minimum information provided to the Board on proposals to be deliberated includes objective, background, key issues, rationale as well as financial and non-financial impact of the proposals for the Board to make informed and effective decisions.
The Directors may communicate directly with Senior Management to seek advice and request further information as well as updates on any aspect of Aafaq’s operations and business concerns.
In addition, the Directors have the right to seek independent advice on specific matters that in their opinion require unbiased evaluation, at the expense of aafaq. A formal procedure is in place to facilitate them in seeking independent professional advice. A copy of the report or independent advice will be made available to the Chairman and, if deemed appropriate, be circulated to all Directors for deliberation.
Meetings and Supply of Information to the Board
Board meetings are conducted quarterly and whenever required to deliberate any arising issues. At each Board meeting, the Board among others is informed of decisions and salient issues by the respective Board Committees’ Chairman/representatives.
To ensure effectiveness in executing its roles and responsibilities, the Board also delegates specific authorities to the following committee:
1. Executive Committee
2. Nominations and remunerations committee (NRC)
3. Audit Committee
4. Board Risk and Compliance Committee (BRCC)
5. Internal Shari ’a Compliance Committee
The delegation of authority is expressly stipulated in the charter of the respective Board Committees. The charter is reviewed periodically to ensure effective and efficient decision making with the Company’s Governance Framework. The Board Committees also act as oversight committees, evaluating and recommending matters under their purview for the Board to consider and approve. The Board receives updates from the respective chairman/representatives of the above-mentioned committees on matters that require specific attention that are deliberated and considered at the meetings of Board Committees.
The primary role of the Executive Committee is to oversee the implementation and monitoring of the Board’s decisions and to provide strategic guidance for the Company up as delegated by the Board and the committee. The key responsibility of the Board Executive Committee includes the following:
• Review and provide input and guidance in the implementation and monitoring of the strategy (ies) and all other matters approved by the Board.
• Review the strategic and business plans and budgets of the Company.
• Review potential investments, mergers, acquisitions and divestitures of businesses and other assets of the Company.
• Review management reports from business and support units on key initiatives undertaken by the Company.
• Monitor and evaluate political, economic and business conditions and developments in the financial markets on an on-going basis and to discuss with the management of the Company to ensure that any potential material impact is identified and managed; accordingly, and
• Consider other matters or undertake such duties and responsibilities as required from time to time by the Board.
Nominations and remunerations committee (NRC)
The NRC assists the Board in the effective discharge of its responsibilities and to fulfil its corporate governance responsibilities with regard to nomination and remuneration matters so as to ensure that:
• The Company has an effective composition, size and commitment of Board Members and staff to adequately discharge its responsibilities and duties.
• The Company has an appropriate selection criteria and processes for the identification of suitable candidates to become members of the board.
• The Company has appropriate procedures to assess the remuneration levels for the Board, the Chief Executive Officer, the Senior Management and the staff.
• The Company adopts, monitors and applies appropriate remuneration policies and procedures that reflect the Company's values.
• The Company reporting disclosures related to remuneration meet the Board's disclosure objectives and all relevant legal requirements; and
• The Company has adequate succession plans.
The Audit Committee assists the Board in overseeing the financial reports, internal control, risk management and governance processes currently operating within aafaq. The Audit Committee reviews the quarterly, semi-annual and year-end financial results, audit plan, audit report, functions of internal audit, related party transactions, conflict of interest situations and independence of external auditors. As per the requirement of the Central Bank, aafaq meets the required submission of its financial statements along with the required regulatory written confirmations of its compliance requirements set out by the Central Bank within the stipulated timeframe.
Board Risk and Compliance Committee (BRCC)
The Risk Committee is responsible for formulating and reviewing the risk management policies and risk strategy of aafaq. The Risk Committee, and the Company’s Chief Risk Officer, defines the risk management objectives across risk categories and business lines with a view of setting the Company’s risk appetite.
Aafaq’s risk management approach is based on the three-lines of defence concept whereby risks are managed from the point of risk-taking activities. This is to ensure clear accountability of risks across the company and risk management as an enabler of the business units. As a first line of defence, the line management, including all business units and units which undertake client facing activities, are primarily responsible for risk management on a day-to-day basis by taking appropriate actions to mitigate risks through effective controls. The second line of defence provides oversight functions, performs independent monitoring of business activities and reporting to management to ensure that the Company is conducting business and operating within the approved appetite and is in compliance to regulations. The third line of defence is Internal Audit which provides independent assurance to the Boards ensuring the internal controls and risk management activities functions effectively.
Internal Shari’a Compliance Committee
Aafaq Shari ’a Governance Framework accounts for four different bodies: Internal Shari’a Supervisory committee ISSC, Internal Shari ‘a Compliance Committee ,Internal Shari ‘a Control Department and Internal Shari’a Audit Unit.
The members of the Internal Shari’a Supervisory committee ISSCare distinguished scholars within the Islamic finance industry. The ISSC ensures that Sharia rulings relating to Aafaq’s Islamic financing business model and services comply with the fundamental Sharia principles and resolutions by the relevant Sharia authorities and Higher Shari’a Authority HAS . Aafaq’s ISSC is governed and regulated by the Central Bank of the UAE and supervised by an HSA the ISSC supervises all transactions, operations, and activities with full coordination with the Internal Shari ‘a Control Department and Internal Shari’a Audit Unit to ensure that the Aafaq’s business model is fully Shari’a compliant. The Internal Shari ‘a Compliance Committee aims to oversight all activities are being carried out in the company. Its sole purpose is to assist Senior Management in fulfilling its oversight responsibilities. Internal Shari ‘a Control Department is to review and analyse risk associated with all existing activities of the Company and their compliance to the Islamic Shari ‘a doctrine in the world of finance. The meetings of the Sharia Board are held periodically or based on specific requirement basis.
Proactive Communication with Shareholders
The Board ensures that shareholders are well informed on Aafaq’s business strategy and direction. Transparent and timely communication with the shareholders is essential in successful implementation of Aafaq’s strategies and helps to foster shareholders’ confidence in Aafaq’s success. To raise the level of corporate credibility and governance as well investor confidence setting of a communication policy was essential thus leading to aafaq designing a communication framework with clear sets of communication guidelines and protocols. The communication guidelines and protocols encompass the following:
• Use of the various available mediums of communication,
• Policies and procedures relating to dissemination of information to the Shareholders, media and other stakeholders,
• Step-by-step approach in handling material information; and mechanisms used to gauge external opinions.
Contacts and communication with stakeholders are conducted through the designated spokespersons approved by the Board or the Company’s Chief Executive Officer.
Financial Statements Reporting & Accountability
Financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) and UAE Central Bank guidelines. The Financial Statements are prepared with an ongoing concern thereby providing true and fair view of the state of affairs of aafaq as of the end of the financial year. Appropriate accounting policies are applied consistently in preparing the financial Statements, supported by reasonable and prudent judgment and estimates. The Directors have overall responsibilities in taking such steps; and are open to safeguard the assets of aafaq; ensuring Aafaq’s financial report delivers a balanced and comprehensive assessment of its financial position and prospects.
The Board has a key mandate to ensure and establish a sound system of internal control and in determining Aafaq’s level of risk tolerance as well as to continuously identify, assess and monitor key business risks to safeguard shareholders’ investments and Aafaq’s assets. These functions are carried out by the Audit Committee and Board Risk and Compliance Committee which are responsible for risk management functions, financial reporting, disclosures, regulatory compliance and internal control processes. To achieve this, the Board ensures that the business processes, risk management, policies and procedures, and control mechanisms are adequate and appropriate through periodic review, testing and assessment as set out through the audit and risk management plans. Aafaq’s dynamic operating environment requires the Board to constantly review and monitor the effectiveness of its system of internal controls. Regular self-testing and high-level risk assessment are conducted, followed by review and update on a periodic basis. Based on the review undertaken throughout the year, the Board concluded that Aafaq’s system of internal controls is adequate in meeting its changing needs and regulatory requirements.