Risk Management & Governance
A Robust Framework
Good governance is central to how Arab Invest lead and invest. The Board of Directors prioritizes the safeguarding of the Company’s assets and reputation, with a focus on delivering enduring value for its shareholders. Arab Invest is committed to fostering a culture where accountability, transparency, and sound judgment guide decision-making at every level though well-defined GRC Policies, Processes and Systems.
Arab Invest governance framework establishes clear responsibilities between the Board, its committees, and executive management, ensuring effective oversight of strategy, performance, risk management, and compliance. For this purpose, a Board Governance, Risk and Compliance Committee (GRCC) ensures effective implementation and oversight of GRC Framework in line with applicable regulatory guidelines and best industry practices through an independent GRC Department.
Three Lines of Defense
Arab Invest has adopted Three Lines of Defense model where the Investment Department is the “First Line of Defense”, the support functions, such as GRC, Finance, Investment Operations, Legal, etc. forms the “Second Line of Defense” and Internal Audit acts as “Third Line of Defense”.
During 2025, Arab Invest further strengthened its governance framework through the introduction of a comprehensive Code of Conduct Policy for Board members, reflecting the Company’s commitment to the principle that effective governance begins at the top and that Board members are held to the same ethical standards as all employees. This initiative reinforces accountability and integrity at the highest level of leadership, and supports consistent decision-making aligned with the Company’s values.
At Arab Invest, risk is managed proactively, recognizing that effective risk management is fundamental to making sound investment decisions and achieving sustainable growth. Arab Invest has established a comprehensive risk management framework to identify, assess, and address potential risks, including credit, market, operational and liquidity. The framework is fully integrated into day-to-day investment operations and is supported by clear governance structures, well-defined responsibilities, and regular reporting to the Board GRCC, and senior management. The key risks, among others, which are managed by the GRC Department are as under:
Management
To manage credit risk, Arab Invest sets appropriate country and counterparty limits and conducts regular exposure reviews. The GRC Department performs ongoing assessments and reports key observations and any exceptions to Board GRCC and the senior management.
Arab Invest investment activities are primarily exposed to foreign exchange, equity price, and interest rate risks. These risks are managed through defined risk appetite limits, portfolio diversification and ongoing market monitoring.
Arab Invest embed operational risk oversight into its day-to-day investment activities, ensuring an appropriate balance between risk, return, and cost. Operational risk is periodically assessed through the Risk & Control Self-Assessment (RCSA) process and monitored using Key Risk Indicators (KRIs). An Internal Loss Data (ILD) process further supports the assessment of operational risk exposures and the effectiveness of internal controls. Management of operational risk includes third-party oversight and business continuity management.
Business continuity risk is managed in accordance with the Company’s Business Continuity Management Policy, which establishes the framework for maintaining critical operations in the event of disruption and limit losses in the event of severe business disruption. During 2025, Arab Invest enhanced its Business Continuity Management (BCM) framework through the implementation of updated BCM policies and procedures. This initiative included the completion of comprehensive business impact analyses and risk assessments, as well as the development of tailored Business Continuity Plans for each department. These enhancements reflect the evolving nature of the business and its operating environment, strengthening organizational resilience, improving preparedness for potential disruptions, and ensuring the continuity of critical operations while minimizing operational and reputational risks.
Arab Invest adopts a prudent approach to liquidity risk management to ensure it can meet operational needs and investment commitments as they arise. As the balance sheet is fully funded by shareholders’ equity with no external borrowings or material liabilities, liquidity risk exposure is limited. Liquidity levels are monitored through cash flow forecasting and portfolio liquidity assessments to ensure Arab Invest maintains sufficient liquid resources to meet its obligations and respond effectively to market developments.
Management of reputational risk is an inherent feature of Arab Invest corporate culture and is embedded as an integral part of the internal control systems. Arab Invest maintains the highest level of professional standards in conducting its investment business and places paramount importance on its reputation through honesty, integrity, and ethical standards.
Arab Invest is committed to conducting its business activities with integrity and in full compliance with applicable laws and regulatory expectations. Protecting the Company from Financial Crime risks remains a key priority. Arab Invest maintain strong controls to address risks related to money laundering (ML), sanctions evasion, terrorism financing (TF), proliferation financing (PF), fraud and forgery, and bribery and corruption. These controls are supported by risk-based due diligence, monitoring processes, regular assessments, and ongoing employee awareness and training.
Arab Invest places equal weightage on the Conduct risk management across the Company. Clear policies guide the employees on matters such as gifts and entertainment, conflicts of interest, personal account dealing, and outside business activities. Through disclosure requirements, approval procedures, and oversight mechanisms, Arab Invest aim to ensure that decisions are made transparently and in the best interests of the Company and all stakeholders. Together, these efforts strengthen a culture of accountability, ethical conduct, and responsible decision-making across the Company.
In 2025, Arab Invest strengthened its Compliance function through the adoption of a revised framework for managing financial crime risks, encompassing money laundering, sanctions evasion, terrorism financing, proliferation financing, fraud and forgery, as well as bribery and corruption. In addition, the Company introduced new policies to support the proactive management of conflicts of interest and gifts and entertainment, reinforcing transparency, safeguarding the integrity of decision-making, and promoting a culture of accountability. These measures are intended to support stakeholder confidence, help reduce potential reputational and regulatory risks, and promote alignment with evolving best practices and regulatory expectations.
