MUSCAT: The Financial Services Authority (FSA) has identified significant violations committed by the former board of a company, particularly in relation to internal audit processes and related party transactions. According to the FSA, the board engaged unaccredited entities to conduct certain internal audit works, failing to meet regulatory standards. Furthermore, the board did not ensure that transactions involving related parties were executed on a fair and arm’s-length basis, thereby breaching the applicable laws and regulations. These actions raised concerns about transparency and corporate governance, prompting regulatory scrutiny.
A critical finding was the board’s direct engagement in detailed financial transactions with a major shareholder of the company, violating Article 13.a of the Securities Law. This law explicitly requires that all related party transactions be conducted under fair terms without preferential treatment. The board, however, disregarded this requirement, leading to concerns about conflicts of interest and unfair financial advantages. The FSA’s decision emphasized the importance of adherence to securities regulations to prevent manipulation or undue influence over financial dealings within corporate structures.
Additionally, the FSA pointed out that the former board permitted the major shareholder to perform internal audit activities, a clear violation of Article 212 of the Commercial Companies Law. This law mandates that financial audits must be conducted by accredited auditors and not by shareholders, except when a formal request has been submitted for review. By allowing the shareholder to audit financial records, the board compromised the integrity of the company’s financial oversight mechanisms, raising concerns about accountability and financial mismanagement.
In light of these violations, the FSA has issued a strong warning to all regulated entities, urging them to comply strictly with all applicable laws and regulations. The authority reiterated that any breach of corporate governance rules could result in financial penalties or administrative sanctions. This case serves as a stark reminder of the importance of proper auditing standards, ethical business practices, and adherence to corporate governance principles to maintain market integrity and investor confidence.
