2.2.1. Corporate governance principles

Pursuant to section 82(2) of the Framework Regulations, the principles in MAR 2.2.2 to 2.2.8 are hereby prescribed as “the Corporate Governance Principles”.

Guidance:

Corporate governance principles

(1) The Corporate Governance Principles in this section apply to Reporting Entities as mandatory high level requirements. MAR Schedule 3 sets out best practice standards that may be adopted by a Reporting Entity to achieve compliance with these principles.

(2) The best practice standards in MAR Schedule 3 are designed to provide a degree of flexibility so that a Reporting Entity can achieve outcomes intended by the Corporate Governance Principles whilst taking into account the nature, scale and complexity of its business.

(3) Generally, if a Reporting Entity does not adopt the best practice standards set out in MAR Schedule 3, or adopts them only partially, the AFSA would expect the reasons for doing so and any alternative measures adopted to achieve the outcomes intended by the Corporate Governance Principles to be disclosed in the Prospectus and thereafter pursuant to disclosure required under MAR 2.2.9. Any inaccurate or false representations would breach the prohibition against misleading and deceptive statements in section 75 of the Framework Regulations.

2.2.2. Principle 1 – Board of directors

A Reporting Entity must have an effective Board which is collectively accountable for ensuring that the Reporting Entity’s business is managed prudently and soundly.

2.2.3. Principle 2 – Division of responsibilities

The Board must ensure that there is a clear division between the Board’s responsibility for setting the strategic aims and undertaking the oversight of the Reporting Entity and the senior management’s responsibility for managing the Reporting Entity’s business in accordance with the strategic aims and risk parameters set by the Board.

2.2.4. Principle 3 – Board composition and resources

The Board, and its committees, must have an appropriate balance of skills, experience, independence and knowledge of the Reporting Entity’s business, and adequate resources, including access to expertise as required and timely and comprehensive information relating to the affairs of the Reporting Entity.

2.2.5. Principle 4 – Risk management and internal control systems

The Board must ensure that the Reporting Entity has an adequate, effective, well- defined and well-integrated risk management, internal control and compliance framework.

2.2.6. Principle 5 – Shareholder rights and effective dialogue

The Board must ensure that the rights of shareholders are properly safeguarded through appropriate measures that enable the shareholders to exercise their rights effectively, promote effective dialogue with shareholders and other key stakeholders as appropriate, and prevent any abuse or oppression of minority shareholders.

2.2.7. Principle 6 – Position and prospects

The Board must ensure that the Reporting Entity’s financial and other reports present an accurate, balanced and understandable assessment of the Reporting Entity’s financial position and prospects by ensuring that there are effective internal risk control and reporting requirements.

2.2.8. Principle 7 – Remuneration

The Board must ensure that the Reporting Entity has Remuneration structures and strategies that are well aligned with the long-term interests of the entity.

2.2.9. Annual reporting on compliance

The annual financial report of a Reporting Entity to which this section applies must:

1. (a) state whether the best practice standards specified in MAR Schedule 3 have been adopted by the Reporting Entity for the purposes of complying with the Corporate Governance Principles; and
2. (b) if the best practice standards in MAR Schedule 3 have not been fully adopted or have been only partially adopted explain:
3. (i) why the best practice standards were not adopted fully or adopted only partially, as is relevant; and
4. (ii) what actions, if any, have been taken by the Reporting Entity to achieve compliance with the Corporate Governance Principles to the extent the relevant best practice standards were not adopted, or were only partially adopted; and
5. (c) include a statement by Directors whether or not, in their opinion, the corporate governance framework of the Reporting Entity is effective in promoting compliance with the Corporate Governance Principles, with supporting information and assumptions, and qualifications if necessary. Guidance: Annual reporting on compliance

(1) MAR 2.2.9 reflects the “comply or explain” approach adopted by the AFSA in respect of the Corporate Governance Principles.

(2) With regard to the opinion required under MAR 2.2.9(c), adequate information relating to the corporate governance framework of the Reporting Entity should be included to support the opinion, such as the identity of its chair, any committees of the Board and their role and membership, the chief executive and Persons undertaking key control functions such as the head of compliance, risk control and internal audit and how their independence is achieved.

2.3.1. Application

This section applies to:

(a)      the Board of a Reporting Entity; and

(b)      each individual Director who is a member of such a board.

Guidance: Directors duties and fair treatment of shareholders

(1)   Where a Person referred to in MAR 2.3.1 is required under any legislation applicable to such a Person to comply with a similar or more stringent requirement than the requirements in this section, compliance with those other requirements would be sufficient compliance for the purposes of the relevant requirement in this section.

(2)    For example, in the case of a reduction of share capital, more stringent procedures such as a special resolution (i.e. a vote of at least 75% of the shareholders in voting), may be required under the company law or other legislation applicable to a Reporting Entity in its jurisdiction of incorporation. Where this is the case, compliance with the more stringent requirements applicable to the Reporting Entity suffices for the purposes of compliance with the requirements in this section dealing with a shareholder approval by simple majority in MAR 2.3.8.

2.3.2. Directors’ duties

A Director of a Reporting Entity must act:

1. (a)    on a fully informed basis;
2. (b)    in good faith;
3. (c)     honestly;
4. (d)    with due diligence and care; and
5. (e)    in the best interests of the Reporting Entity and its shareholders.

Guidance: Directors’ duties

In order to meet the obligation to act with due diligence and care, a Director should (amongst other things) ensure that he or she has enough time and capacity available to devote to the job. See also the best practice standards in MAR Schedule 3 which apply to Directors of Reporting Entities who are subject to the Corporate Governance Principles.

The directors' duties contained in the AIFC Companies Regulations applicable to companies incorporated under the regulations should also be carefully considered and adhered to. These include the duty to promote the success of the Company. This is a subjective test – in other words, the duty on a Director is to act in a way he or she considers to be in the best interests of the Reporting Entity to promote its success. Directors of Recognised Companies under the AIFC Companies Regulations should obtain appropriate advice on their duties under the law applicable to that Recognised Company.

2.3.3. Equality of treatment

The Board of a Reporting Entity must ensure equality of treatment of all holders of Securities of a particular class or type in respect of all rights attaching to the Securities of that class or type of Securities.

2.3.4. Reduction of share capital

The Board of a Reporting Entity must ensure that a Reporting Entity does not reduce its Share capital unless:

1. (a)     the reduction does not materially prejudice the Reporting Entity’s ability to pay its creditors;
2. (b)     a public disclosure is made as soon as possible of any proposed change in its capital structure, and, following the redemption of listed Shares, if any, information on such redemption including details of the number of Shares redeemed and the number of Shares of that class outstanding following the redemption.
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2.3.5. Pre-emption rights

The Board of a Reporting Entity must, except where otherwise provided in the constituent documents of the Reporting Entity, ensure that a Reporting Entity provides pre-emption rights under which, on an issue of Shares by the Reporting Entity for cash, the shareholders of the Reporting Entity are offered any Shares to be issued in proportion to their existing holdings prior to the Shares being offered to third parties, unless there is prior approval of the issue of Shares without pre-emption rights by shareholders in meeting, by a majority vote.

2.3.6. Communications with shareholders

(1) The Board of Reporting Entity must ensure that all necessary information and facilities are available to its shareholders to enable them to exercise the rights attaching to the Shares on a well-informed basis.

(2)    Without limiting the generality of the obligation in (1), the Board must ensure that the shareholders:

1. (a)     are provided with the necessary information relating to the matters to be determined at meetings to enable them to exercise their right to vote, including the proxy forms and notice of meetings; and
2. (b)     have access to any relevant notices or circulars giving information in relation to the rights attaching to the Securities.
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2.3.7. Proxy solicitation

The Board of a Reporting Entity must ensure that for each meeting at which shareholders are eligible to exercise voting rights attaching to their Securities, each shareholder is given the right and means to vote by proxy.

2.3.8. Other matters requiring shareholder approval

(1)The Board of a Reporting Entity must, subject to (2), ensure that a majority of shareholders in voting approves:

(a)      any alteration of the constitutional documents of the Reporting Entity including any alteration to the memorandum of association, articles of association, bylaws or any other instrument constituting the Reporting Entity;

(b)      the appointment or removal of a Director of the Reporting Entity and the terms of such appointment;

(c)      the appointment or removal of the Auditor of the Reporting Entity; and

(d)      the placing of the Reporting Entity into voluntary liquidation;

(2)The requirement in (1) does not apply, subject to any requirements in the constitutional documents of the Reporting Entity, in relation to the appointment or removal of a Director or Auditor of a Reporting Entity in circumstances where the immediate appointment or removal is necessary in the interests of the Reporting Entity.

Guidance: Other matters requiring shareholder approval

The circumstances in which the immediate removal of a Director or Auditor may become necessary include matters affecting that Person’s fitness and propriety, such as professional misconduct of such a Person.

2.4.1. Application

(1)    This section applies to:

1. (a)      the Board of every Reporting Entity; and
2. (b)a Restricted Person in relation to such a Reporting Entity.

(2)   For the purposes of (1)(b), a Person is a Restricted Person in relation to a Reporting Entity if he or she is involved in the senior management of the Reporting Entity.

Guidance: Senior management

Persons are considered as involved in the senior management if they are in a position of authority and influence in making management or executive decisions with regard to the day- to-day management of the business of the Reporting Entity. Some members of the Board, such as executive Directors, will be subject to the requirements in this section because they undertake managerial functions and responsibilities relating to the day-to-day management of the Reporting Entity.

2.4.2. Prohibition on dealing

(1) A Restricted Person must not engage in dealing in the Securities of the Reporting Entity during a closed period except in the circumstances specified in MAR 2.4.4 or MAR 2.4.5.

(2)    The prohibition in (1) applies to any dealing by Restricted Persons whether or not such dealings are with another Restricted Person or any other Person.

2.4.3. Definition of “closed period” and “dealing in Securities”

For the purposes of MAR 2.4.2:

             (a)    a ‘closed period’ is

1. (i)    the period from the relevant financial year end up to and including the time of the announcement or publication of the annual financial statements and/or results; and
2. (ii)    if the Reporting Entity reports on a semi-annual basis, the period from the end of the relevant semi-annual financial period up to and including the time of the announcement or publication of the semi-annual financial statements and/or results; or
3. (iii)  if the Reporting Entity reports on a quarterly basis, the period from the end of the relevant quarter up to and including the time of the announcement or publication of the quarterly financial statements and/or results.
4. (b)    ‘dealing in Securities’ means:
5. (i)      any acquisition or disposal of, or agreement to acquire or dispose of, Securities of the Reporting Entity; or
6. (ii)     entering into a contract (such as a contract for difference) the purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the price of the Securities of the Reporting Entity; or
7. (iii)    the grant, acceptance, acquisition, disposal, exercise or discharge of any option to acquire or dispose of any Securities of the Reporting Entity; or
8. (iv)    entering into, or terminating, assigning or novating any stock lending agreement in respect of the Securities of the Reporting Entity; or
9. (v)     using as security, or otherwise granting a charge, lien or other encumbrance over the Securities of the Reporting Entity; or
10. (vi)    any other transaction including a transfer for no consideration, or the exercise of any power or discretion effecting a change of ownership of a beneficial interest in, the Securities of the Reporting Entity.
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2.4.4. Clearance to deal

(a)    The prohibition in MAR 2.4.2 (a) does not apply in relation to any dealing in Securities where the Restricted Person has obtained prior clearance to deal as provided in (b) and (c).

(b)    For the purposes of (a), prior written clearance to deal in the Securities of a Reporting Entity must be obtained:

1. (i)    from a Director designated by the Board for the purposes of providing clearances to deal; and
2. (ii)    in the case of dealings by the Director designated for the purpose of providing clearances to deal, from the full Board or another Director designated by the Board for the purposes of providing such clearance.

(c)     For the purposes of (a) and (b), a Director of the Reporting Entity must not be given written clearance to deal in any Securities of the Reporting Entity during any period when there exists any matter which constitutes Inside Information unless the Person responsible for granting clearance has no reason to believe that the proposed dealing is or may be in breach of the Framework Regulations or MAR.

2.4.5. Exempt dealings

The prohibition in MAR 2.4.2 (a) does not apply in relation to any dealing in Securities in the Reporting Entity if such dealing by the Restricted Person relates to:

1. (a)     undertakings or elections to take up, or the taking up of, an entitlement under a rights issue or dividend reinvestment offer, or allowing such an entitlement or offer to lapse; or
2. (b)    undertakings to accept, or the acceptance of, a Takeover Offer under Takeover Rules; or
3. (c)    dealings where the beneficial interest in the relevant Security does not change; or
4. (d)    transactions between the Restricted Person and an Associate of such a Person; or
5. (e)    transactions relating to dealings in an Employee Share Scheme in accordance with the terms of such a scheme.

2.5.1. Application

This section applies, subject to MAR 2.5.4, to:

• (a) a Reporting Entity; and
• (b) a Related Party of such a Reporting Entity.

2.5.2. Definitions

In this section, unless otherwise provided:

1. (a) a Person is a Related Party of a Reporting Entity if that Person:
2. (i) is, or was within the 12 months before the date of the Related Party Transaction:

(A) a Director or a Person involved in the senior management of the Reporting Entity or a member of its Group;

(B) an Associate of a Person referred to in (a)(i)(A); or

1. (ii) owns, or has owned within 12 months before the date of the Related Party Transaction, voting Securities carrying more than 5% of the voting rights attaching to all the voting Securities of either the Reporting Entity or a member of its Group; or
2. (iii) is, or was within the 12 months before the date of the Related Party Transaction, a Person exercising or having the ability to exercise significant influence over the Reporting Entity or an Associate of such a Person.
3. (b) a transaction is a Related Party Transaction if it is a transaction:
4. (i) between a Reporting Entity and a Related Party; or
5. (ii) under which the Reporting Entity invests in another Undertaking or asset, or provides financial assistance to another Undertaking, in which a Related Party also has a financial interest; or
6. (iii) between the Reporting Entity and any other Person the purpose or effect of which is to benefit a Related Party; or
7. (iv) of the kind referred to in (i) – (iii) and is between a Subsidiary of a Reporting Entity and a Related Party of the Reporting Entity.

Guidance:

Definitions Any transaction between a Subsidiary of a Reporting Entity and a Related Party is included within the definition of a Related Party Transaction. This is because a Related Party may, through the Reporting Entity, be able to influence terms which are more favourable to the Related Party when transacting with the subsidiary. Such transactions could be detrimental to the interests of the Reporting Entity.

2.5.3. Related party transaction procedures

If a Reporting Entity enters into a Related Party Transaction or a series of Related Party Transactions in any 12-month period and the value of such transaction(s) is greater than 5% of value of the net assets of the Reporting Entity as stated in its most recent financial reports, the Reporting Entity must, no later than the time when the terms of the transaction or arrangement are agreed, make public disclosure which sets out:

1. (a)    the nature of the Related Party relationship;
2. (b)    the name of the Related Party;
3. (c)    the date and the value of the transaction or arrangement; and
4. (d)    any other information necessary to assess whether the transaction or arrangement is fair and reasonable from the perspective of the Reporting Entity and of the stakeholders who are not a Related Party, including minority shareholders and creditors.
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2.5.4. Exemptions

The requirements in this section do not apply to a transaction referred to in MAR 2.5.2(b):

• (a) where the transaction is made in the ordinary course of business and on commercial terms no less favourable than those of an arm’s length transaction with an unrelated party; or
• (b) where it, or any series of transactions with the same Related Party in any 12-month period, does not exceed 0.25% of the value of the net assets of the Reporting Entity as stated in its most recent financial reports; or
• (c) where it is made in accordance with the terms of an Employee Share Scheme or other Employee incentive scheme approved by the Board of the Reporting Entity; or
• (d) where it involves the issue of new Securities for cash or pursuant to the exercise of conversion or subscription rights attaching to Securities issued to existing Shareholders where the Securities are traded on an Authorised Investment Exchange.