New corporate governance rules and an institutional code of conduct for listed companies are being introduced by the Securities and Commodities Authority (SCA).

The regulations are set out in a decree issued by Sultan bin Saeed Al Mansouri, Economy Minister and Chairman of the SCA's board, and will come into effect on May 1 next year. The decree amends rules announced by the authority in April 2007.

Al Mansouri urged all stakeholders to use the grace period to hear the views of public joint stock companies and other institutions that will implement the code.

This would enable them to make the necessary adjustments to achieve the objectives of the decree. These included improving the standard of administrative and financial controls, taking into account the importance of these in terms of protecting the financial system on the one hand and protecting stakeholders on the other.

"This is in addition to [the decree's] effect on the promotion of transparency, which is very important to investors who are encouraged to invest more in markets and companies that implement higher standards of corporate governance," said Al Mansouri.

"Listed companies should view the implementation of corporate governance as a framework through which their operations will be guided and monitored to ensure the achievement of targeted objectives."

The objectives included attaining the highest standards of responsibility, fairness and transparency. "The new amendments will encourage firms to implement the code and boost their understanding of the significance of the new rules in entrenching institutional codes of conduct and the important roles they play in improving business practices. In addition they establish the highest standards of fairness and independence."

SCA Executive Chairman Abdullah Al Turaifi said the amendments were designed to boost exposure and transparency by establishing internal monitoring systems in public joint stock companies listed on any of the UAE's stock markets.

"This will be like the systems in international financial markets but will fit the UAE's socio-economic situation," he said.

The decree says the revised rules must be implemented by all companies and business institutions listed on any of the UAE's stock markets and by members of their boards. But some companies fully owned by the federal or local governments have been exempted. The decree says essential financial transactions must be thoroughly cross-checked to ensure the independence of all members of the company's board. Such transactions are defined as those involving five per cent of the company's paid capital or Dh5 million or its equivalent in foreign currency, whichever is less.

A company's external auditor must be independent from the company and its board. To achieve this, the decree warns auditors against adopting certain practices while reviewing a company's financial reports. The rule is based on studies of international practices conducted by SCA and other bodies.

The duties of appointment and remuneration committees have been amended to include the drawing up of a special policy on remuneration, entitlements, incentives and salaries of board members and other staff and reviewing the policy annually.

And the decree sets out penalties for companies that fail to comply with the rules. These range from a warning letter for first offenders to the suspension or cancellation of stock market listings and fines.

A series of forums and workshops will be held by SCA to explain the new rules.

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