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The Importance of Shariah Governance in the Banking Industry in Saudi Arabia and the Case of Shariah Committee Members as Related Parties

Summary: 1. Introduction. – 2. Corporate Governance: An Overview on the Main Principles Adopted by Saudi Regulations. – 3. Shariah Governance Application in Saudi. – 4. Shariah Committee Composition. – 5. Shariah Committee Independence Affecting Issues. – 6. Shariah Committee Members as Related Parties. – 7. Shareholder’s Authorisations for Shariah Committee Members’ Contracts and Businesses. – 8. Shariah Committee Related Party Transaction Disclosures. – 9. Concluding Remarks.

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 Background: Saudi Arabia has become an important economic player in the world. Based on this strategic importance, the banking sector had to keep pace. As a result, the Shariah Governance Framework was put in place in February 2020, as banks in Saudi operate in accordance with the requirements of Islamic laws. Therefore, shariah governance is important in the Islamic banking industry, The Shariah Governance framework was issued to control the growth in financial assets, and the first issuance of such a framework needed comprehensive studies. Therefore, due to the lack of local and international research focused on the Saudi corporate governance infrastructure, specifically related parties, the significance of this paper lies in the academic impact and the impact it has on the field practitioners, as it will try to identify the concept of shariah committee members and their re-addition as related parties and disclosures. This research paper aims to study a key principle in corporate governance, that is, the conflict of interest that can be defined under Related Parties Transactions. Specifically, this study will focus on the Shariah Committee Members as Related Parties in the Banking sector in Saudi Arabia. Methods: The researchers used primary and secondary resources.

Results: This paper concludes with some findings related to the Shariah Governance Framework and the narrowed topic of this paper, which is the Shariah committee members as related parties. Although it was an important step to re-add the members, there is a need to improve the current regulatory structure.

Abstract

 Background: Saudi Arabia has become an important economic player in the world. Based on this strategic importance, the banking sector had to keep pace. As a result, the Shariah Governance Framework was put in place in February 2020, as banks in Saudi operate in accordance with the requirements of Islamic laws. Therefore, shariah governance is important in the Islamic banking industry, The Shariah Governance framework was issued to control the growth in financial assets, and the first issuance of such a framework needed comprehensive studies. Therefore, due to the lack of local and international research focused on the Saudi corporate governance infrastructure, specifically related parties, the significance of this paper lies in the academic impact and the impact it has on the field practitioners, as it will try to identify the concept of shariah committee members and their re-addition as related parties and disclosures. This research paper aims to study a key principle in corporate governance, that is, the conflict of interest that can be defined under Related Parties Transactions. Specifically, this study will focus on the Shariah Committee Members as Related Parties in the Banking sector in Saudi Arabia.

Methods: The researchers used primary and secondary resources.

Results: This paper concludes with some findings related to the Shariah Governance Framework and the narrowed topic of this paper, which is the Shariah committee members as related parties. Although it was an important step to re-add the members, there is a need to improve the current regulatory structure.

About Authors

 Wejdan Alsunaidi
College of Law Researcher, Prince Sultan University, Riyadh, Kingdom of Saudi Arabia
wjdanalsunaidy@gmail.com

Corresponding author, responsible for writing and research. Competing interests: Any competing interests should be included here. Disclaimer: The authors declares that the opinion and views expressed in this paper are free of any impact of any organizations.

Mohammed Albakjaji
PhD in Law, Assistant Professor at Prince Sultan University, College of Law, Saudi Arabia 

mabkjaji@psu.edu.sa 
https://orcid.org/0000-0001-5160-0530

Co-author, responsible for writing and research.
Competing interests: Dr. Albakjaji serves as a Guest Editor of the Special Issue, though he was not involved in peer review and was not able to impact decisions; to avoid any bias, the final decision concerning the publication was made by Dr. Maya Khater, who serves as a Guest Editor, and by Editor-in-Chief of the Journal.

Funding: The authors would like to thank Prince Sultan University for supporting this publication. Special acknowledgement is given to the Governance and Policy Design Research Lab (GPDRL) at Prince Sultan University (PSU) for their academic support to conduct this research and publish it in a reputable journal. Translation: The content of this paper was translated with the participation of third parties under the authors’ responsibility.

Managing editor – Mg Polina Siedova. English Editor – Dr Sarah White.

Guest Editors of the Special Issue: Dr. Mohammed Albakjaji, Prince Sultan University, and Dr. Maya Khater, Al Yamamah University, Saudi Arabia.

Copyright: © 2023 Wejdan Alsnuaidi and Mohammed Albakjaji. This is an open access article distributed under the terms of the Creative Commons Attribution License, (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.


 

References

 Alnofli A and Engku Ali ERA, ‘The Role of Key Functions of Shariah Governance in Islamic Financial Institutions (IFIs)’ (2020) 4 (1) International Journal of Fiqh and Usul Al-Fiqh Studies 98, doi: 10.31436/ijfus.v4i1.173.

Garland-McLellan J, ‘Nose in, Fingers Out?’ (Australian Institute of Company Directors, 1 December 2015) <https://www.aicd.com.au/board-of-directors/performance/structure/ nose-in-fingers-out.html> accessed 7 February 2023.

Hidayat SE and Al-Khalifa AK, ‘Sharia Governance Practices at Islamic Banks in Bahrain from Islamic Bankers’ Perspective’ (2018) 10 (1) Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) 53. doi: 10.15408/aiq.v10i1.5991.

Hussain MA, Hassan R and Azhar A, ‘The Procedures of Appointment and Cessation of the Shariah Committee Member of the Islamic Banks and Takaful Companies in Malaysia: Legal Analysis’ (2016) 6 (S7) International Journal of Economics and Financial Issues 266.

Noordin NH and Kassim S, ‘Does Shariah Committee Composition Influence Shariah Governance Disclosure? Evidence from Malaysian Islamic Banks’ (2019) 10 (2) Journal of Islamic Accounting and Business Research 158, doi: 10.1108/JIABR-04-2016-0047.

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 Вейдан Алсунаїді та Мохаммед Албакджаджі


АНОТАЦІЯ

Передумови. Саудівська Аравія стала важливим економічним гравцем у світі.

Зважаючи на цю стратегічну важливу обставину, банківський сектор мав іти з

нею в ногу. Як наслідок, у лютому 2020 року було запроваджено систему

шаріатського управління банками, оскільки банки в Саудівській Аравії

працюють відповідно до вимог ісламських законів. Тому шаріатське

управління має важливе значення для ісламської банківської індустрії.

Шаріатська система управління була створена для нагляду за зростанням

фінансових активів, і перший склад такої структури потребував комплексних

досліджень. Таким чином, через відсутність місцевих і міжнародних

досліджень, присвячених інфраструктурі корпоративного управління

Саудівської Аравії, зокрема, щодо пов’язаних сторін, значущість цієї роботи

полягає в академічному впливі та впливі, який вона має на практиків на

місцях, оскільки автори намагаються визначити концепцію членів

 

шаріатського комітету, а також їх включення до пов’язаних сторін та

розкриття інформації про них. Ця наукова робота має на меті дослідження

ключового принципу корпоративного управління, тобто конфлікту інтересів,

який можна визначити в операціях із пов’язаними сторонами. Зокрема, це

дослідження зосереджено на членах шаріатського комітету як пов’язаних

сторонах у банківському секторі Саудівської Аравії. Ісламська банківська

система в Саудівській Аравії є дуже важливою. Десять банків зареєстровано

на фондовій біржі Саудівської Аравії, і всі вони надають фінансові продукти,

які відповідають вимогам шаріату. Корпоративне управління відповідно до

шаріату є важливим для ісламської банківської індустрії, тому що не тільки

наша правова система заснована на шаріаті, але й наші банки також

пропонують продукти, що допомагають дотримуватися його. Це означає, що

нам потрібна сильна система шаріату, щоб контролювати весь процес і

забезпечити його ефективність.

Методи. Дослідники застосовували первинні та вторинні джерела.

Результати. Ця робота завершується деякими висновками, пов’язаними зі

структурою шаріатського управління, і вужчою темою, яка стосується членів

шаріатського комітету як пов’язаних сторін. Незважаючи на те, що їх

введення було важливим кроком, існує потреба у вдосконаленні цієї

нормативної структури.

Keywords

  • Corporate Governance, Shariah Corporate Governance, Related Parties, Shariah Committee Members

Publication history

  •  Submitted on 16 Feb 2023 / Revised 04 Mar 2023 / Approved 15 Mar 2023 Published online: 03 Apr 2023 / Last published: 16 Jun 2023

How to cite it?

  •  W Alsnuaidi, M Albakjaji ‘The Importance of Shariah Governance in the Banking Industry in Saudi Arabia and the Case of Shariah Committee Members as Related Parties’ 2023 Special Issue Access to Justice in Eastern Europe 148–162. https://doi.org/10.33327/AJEE-18-6S012