KUWAIT Law and Practice Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
Sharia-compliant entities Sharia-compliant entities must follow the CBK Governance Instructions, the CBK Sharia Gov - ernance Framework, and the Companies Law. These entities are required to establish Sharia supervisory boards to ensure their operations and financial products comply with Sharia law. The boards conduct regular audits, typically on a quarterly or annual basis, to assess compli - ance with Sharia principles. As per the CBK’s Circular No (2/IBS/369/2016), all Kuwaiti Islamic banks are required to implement external Sha - riah audits. These audits are conducted by inde - pendent auditors who assess whether the bank complies with the Fatwas issued by its Sharia supervisory board. Audit reports must detail the bank’s compliance with Sharia rules, includ - ing reviews of new financial products and any changes to existing ones. Additionally, Sharia-compliant entities must, where applicable, adhere to international stand - ards incorporated by reference in the CBK regu - lations, including AAOIFI for Sharia compliance and governance, IFSB for prudential standards and risk management, and Basel III, adapted for Islamic finance, for capital adequacy and liquid - ity management. Corporate approvals Corporate approvals for banks in Kuwait vary depending on the nature and significance of the decision. Routine matters, such as the approval of financial statements, profit distribution, and auditor appointments, are handled by the Ordi - nary General Assembly (OGA). For more sig - nificant decisions, such as amendments to the company’s memorandum of association, capital increases or reductions, mergers, acquisitions, or liquidation, approval from the extraordinary general assembly (EGA) is required. These deci - sions may require higher approval thresholds as
specified in the articles of association. The board of directors is responsible for strategic govern - ance and oversight, such as approving internal policies and overseeing executive appoint - ments. Executives, including the CEO and senior management, handle the day-to-day operations of the bank. Provisions The Companies Law and CBK By-laws require CBK-Regulated Entities, particularly banks, to maintain various reserves and adhere to prac - tices that target financial stability and compli - ance with legal obligations: • Statutory reserve: Under Article 222 of the Companies Law, companies must allocate 10% of their annual net profits to a statutory reserve until it reaches 50% of the issued capital. This reserve can only be used to cover losses or distribute dividends when profits are insufficient. • Optional reserve: Article 225 allows compa - nies to allocate up to 10% of net profits to an optional reserve based on board recommen - dations. This reserve can be used for dis - cretionary purposes, such as funding future projects or investments. • Employee fund/end-of-service benefits: Article 224 of the Companies Law requires companies to set aside funds to cover end- of-service indemnities for employees, ensur - ing compliance with labour laws. Additional funds may also be established for employee welfare. • NPL reserves: CBK-Regulated Entities are required to maintain reserves for non-per - forming loans (NPLs) to cover potential losses from bad debts. • IFRS 9/expected credit loss provisions: CBK Regulations require compliance with IFRS 9,
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