Wednesday, January 28, 2015

Compliance in Oman

Compliance with the laws of Oman has always been a priority for business leaders in the Sultanate of Oman. Every member of the senior management of a company (including the CEO) is aware of their influence on the culture and values of the company they represent.

Given the senior management’s primary responsibility for the acts and omissions of a company, it becomes important that the company has an effective compliance programme. A compliance programme can help each employee to do his or her part to contribute to the image and reputation of the company.

Compliance with the laws of Oman

The Sultanate of Oman has a well-established body of laws including laws for specific sectors. The interaction between laws and practice can be relatively complex. Therefore, the senior management in larger companies (mostly listed joint stock companies) tends to appoint a compliance officer to help the company with its compliance effort. Ideally, the compliance officer should report directly to the CEO. It is important that the CEO supports a compliance officer in his or her efforts to improve compliance in a company.

Compliance with the laws of Oman has been likened to a mosaic. The compliance officer needs to examine each law and understand how several laws relate to ensure compliance with applicable law.

The laws of Oman for compliance can be typified as laws of general application and as laws of specific application. Laws of general application include:

  1. Commercial Registration Law (Royal Decree 3/1974);
  2. Commercial Companies Law (Royal Decree 4/1974);
  3. Criminal Law (Royal Decree 7/1974);
  4. Labour Law (Royal Decree 35/2003);
  5. Income Tax Law (Royal Decree 28/2009); and
  6. Consumer Protection Law (Royal Decree 66/2014).

These laws are typified as laws of general application because they apply to all businesses and all forms of incorporated entities in Oman.

Other laws tend to be specific in application because they apply to specific sectors. For example, the banking sector is regulated by the Banking Law (Royal Decree 114/2000) and the Central Bank of Oman. The Central Bank of Oman regularly publishes circulars to banks giving clear directions on banking practices. Furthermore, depending on the bank’s operations, banks need to consider international law and practice. For example, some banks in the Sultanate use ISDA agreements and protocols for their OTC derivative transactions. Therefore, the role and relevance of the compliance officer to the bank is well defined and well developed.

Listed companies, insurance companies and financial services companies are regulated by the Capital Market Authority (Royal Decree 80/1998). In these sectors, the role of the compliance officer is well developed. In recent transactions involving financial services companies it was interesting to notice the respect and importance given to compliance officers by the executives of the company and the Capital Market Authority itself for making the call about whether activities fell within an existing licence or required further licensing. The Capital Market Authority places great emphasis on the implementation of international standards and practices. For example the Sultanate’s disclosure requirements are based upon International Organisation of Securities Commissions principles.

The State Audit Institution Law (Royal Decree 111/2011) and the active regulation of government-owned companies has helped to raise the profile and role of the compliance officer in the Government sector. In the Government sector compliance is partly focused on making sure that decisions are made in a responsible and lawful manner. An important part of the State Audit’s remit is to investigate and challenge government companies on their spending decisions. An effective compliance programme will help government-owned companies to comply with the State Audit’s review.

Ministerial Decision 174/2014 issued by the Ministry of Commerce & Industry seeks to regulate the construction sector in the Sultanate of Oman. This law requires construction companies to register with the Society of Contractors. It also requires new construction companies to have a proven registered capital of OMR 25,000. These measures are intended to regulate the construction sector in Oman. For end users and society as a whole, regulation is there to help society function better. The soft regulation of the construction sector is welcome because of the important role this sector plays in the development of the Sultanate.

Compliance – an ongoing obligation

As in most areas of life in Oman, compliance between companies and their regulators is worked out in an atmosphere of mutual respect and understanding. It is interesting to participate in these dialogues to see practice being worked out. This openness in government is one of the great strengths of the Sultanate of Oman. It is the cohesion of Oman society that facilitates economic development.

Compliance is an ongoing obligation. As laws and practices evolve, companies will need to continuously evolve their compliance efforts. We recommend companies and CEOs to review their company’s compliance programme on an annual basis.