In an effort to improve corporate governance across the Omani banking sector, the Central Bank has recently issued Circular BM 1119, instructing banks and licensed financial institutions to avoid conflicts of interest when appointing board members and senior management. 

The Circular, which was issued on 10 March 2014, noted that while banks may already have certain “conflict of interest” provisions in their constitutional documents (such as a prohibition on CEOs from becoming an independent director of the same bank/financial institution within a two year period), the Central Bank of Oman, as banking regulator, may become “concerned with other scopes of conflicts too”.

Referencing a previous circular (BM 932, issued on 4 February 2002), the Central Bank reiterated the principles of demarcation on the scope, roles and responsibilities of directors and management.  It has been made clear that a Board should be responsible for setting policies and supervising their implementation, whilst management should take responsibility for their actual implementation and report back to the Board.  Recent proposals received by the Central Bank for “approval of senior management and memberships in Boards” have given rise to clear conflicts of interest, which need to be avoided by demarcation.  Examples highlighted by this Circular were: (i) where board members were also appointed as senior managers in banks; and (ii) where senior management had been nominated for advisory, consultancy and other positions. 

Banks are advised against any future situations which could give rise to a potential conflict of interest and should seek clarification if required.  Boards of directors should exercise control over all positions (current and future) to ensure diligence and transparency in matters of conflict risks. 

A copy of the circular can be found here.

Background

The Circular is part of an anti-corruption crackdown, which has seen several company managers jailed and fined for bribery-related offences in the last year, including the CEO of Oman Oil Company who was recently jailed for 23 years for accepting bribes, abuse of office and money laundering (click here for more information).

It is common for prominent businessmen, royal family members and government officials to hold several key board and/or management positions in Gulf Arab States.  This is due, in part, to the fact that commercial relationships are built on trust, which can take many years to develop.  Once the confidence of leadership is gained, the trust and expertise is shared between other public institutions and governmental entities.  The Circular attempts to remind those entities of the appropriate demarcation line between board and management in order to avoid the adoption of further and more draconian anti-corruption measures in the future.

In order to combat corruption within key government sectors, Oman’s ruler, His Majesty Sultan Qaboos bin Said al-Said, recently reshuffled different elements of the government and disbanded the Ministry of National Economy.  In 2012, the Sultan used his annual speech at the opening of government to instruct his government to “take all necessary measures to prevent corruption”.  Following an expanded remit and revised organisation structure, the State and Administrative Audit Institution of Oman has been proactively identifying white collar crime, including within the government and government-owned companies (click here for more information).  

It remains to be seen whether Oman will implement further anti-corruption legislation.  However, on 9 January 2014, Oman ratified the UN Convention against Corruption, which is perhaps an indication of things to come.