In January 2024, the United Arab Emirates (UAE) Securities and Commodities Authority (SCA) introduced pivotal amendments to its corporate governance rules, marking a significant step towards strengthening internal controls, corporate governance, and risk management across listed public joint-stock companies (PJSCs) in UAE. These changes underscore the UAE's commitment to adopting global leading practices in governance and risk management, aiming to foster a regulatory environment conducive to sustainable corporate growth and resilience.
Overview of amendments
Building on the foundation established by the 2020 Governance Code, the SCA's latest amendments (Decision no. 2/R.M of 2024) introduce comprehensive updates across several domains, emphasising the importance of a robust internal controls framework, enhanced governance oversight, and the establishment of rigorous reporting and compliance mechanisms.
Key areas of amendment
- Internal Controls
- Governance Structure
- Reporting and Compliance
Internal Controls
The amendments mandate listed PJSCs to establish a stringent internal control framework, advocating for the adoption of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. A notable requirement is the external auditor's role in issuing separate reports of their opinion on the effectiveness of internal control systems, aiming to identify deficiencies and recommend corrective actions.
Governance Structure
The governance framework is significantly strengthened, with specific responsibilities outlined for the audit committee, including the compilation of an annual report covering significant financial matters, external audit evaluations, and risk management. The introduction of a governance committee, tasked with ensuring compliance with the SCA's Governance Code, further underscores the emphasis on robust governance practices.
Reporting and Compliance
Enhanced transparency and accountability are central to the amendments, with requirements for annual governance and audit committee reports that offer comprehensive insights into a company's governance practices, internal control effectiveness, and risk management strategies.
Strategic implications for PJSCs
Listed PJSCs are encouraged to undertake a holistic evaluation of their current governance frameworks and internal control mechanisms in light of these amendments. This involves assessing the existing operating model, the maturity of internal controls, and the integration of the COSO framework. Companies must prioritise the development of internal policies and guidelines that encapsulate the breadth of operational activities, ensuring a culture of compliance and governance excellence.
The successful implementation of these amendments hinges on several key factors:
The tone from the top: Ensuring that accountability is enforced by governance forums, such as the board and audit committee.
The right team: Establishing a team capable of adapting to changes in the internal control environment.
Focussed scope and standardisation: Developing a clear scope for internal control assessments and standardising processes and controls for consistency and efficiency.
Clear third-party environment understanding: A comprehensive understanding of processes and information systems managed by external parties is critical for a holistic governance approach.
Navigating compliance and governance enhancement
The SCA amendments present an opportunity for PJSCs to align their governance and internal control frameworks with leading standards, enhancing operational efficiency, risk management, and corporate integrity. Embracing these changes requires a commitment to continuous improvement, adaptive governance practices, and leveraging technology for control automation and efficiency gains.
The SCA's amendments represent a strategic advancement in the UAE's governance regulatory scheme, aiming to elevate the standards of corporate governance and risk management. By embracing these amendments, companies can enhance their governance structures, achieve greater transparency and accountability, and foster a culture of continuous improvement and compliance. Listed PJSCs are encouraged to take a proactive approach to compliance, leveraging the amendments as a catalyst for governance innovation and operational excellence.
For comprehensive assistance in navigating these regulatory changes and enhancing your company's governance framework, PwC Middle East stands ready as your trusted partner in governance and compliance solutions.
