The Islamic Financial Services Board (IFSB) has announced that the Council of the IFSB at its 26th
Meeting, held in Jakarta, Indonesia on 2 April, approved the
adoption of a new standard on Core Principles for Islamic Finance
Regulation (CPIFR) (Banking Segment), known as IFSB-17.
Core Principles for various financial sectors have become a standard
tool to guide regulators and supervisors in developing their regulatory
regimes and practices. The Standard has been developed with
the participation of IFSB member regulatory and supervisory authorities, the Basel Committee on Banking Supervision and multilateral organisations
including the International Monetary Fund (IMF)/World Bank in the
working group. It aims to complement the Basel Core Principles in
assessing the strength and effectiveness of regulation and supervision
by the regulatory and supervisory authorities in countries with a
significant Islamic banking industry.
For the conventional sector, such
assessment is carried out by the respective regulatory and supervisory
authorities, peer reviews and by third parties, including by the
IMF/World Bank as a part of their Financial Sector Assessment Programme
(FSAP) for the banking, insurance and capital markets sectors to assess the strength and effectiveness of regulation and supervision.
The IMF/World Bank have completed over 84 FSAPs in several MENA and IFSB
member countries, which, in certain cases have included an assessment
of the Islamic banking, capital market and insurance sectors. However,
many FSAP reports have either not reviewed Islamic finance sectors at
all, or identified the absence of applicable Core Principles for Islamic
finance as a major hurdle for not performing a regular assessment.
The IFSB said that the CPIFR will provide a set of Core Principles – along with the associated assessment methodology – for the regulation and supervision of the Islamic financial services industry (IFSI), taking into consideration the specificities of the institutions offering Islamic financial services (IIFS) in the banking segment, the lessons learned from the financial crisis, and the objective of complementing the existing international standards, principally the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision. The differences in the operational and shari`ah characteristics of
Islamic finance products in various jurisdictions highlight the need for
standardisation of the prudential supervision framework at the
international level, the IFSB noted.
“It is envisaged that these Core Principles will be used by
jurisdictions as a benchmark for assessing the quality of their
regulatory and supervisory systems and for identifying future work to
achieve a baseline level of sound regulations and practices for Islamic
finance. The CPIFR will promote further integration of Islamic finance
with the international architecture for financial stability, while
simultaneously providing incentives for improving the prudential
framework for Islamic finance across jurisdictions so that it is
harmonised and consistently implemented across the globe,” explained
Jaseem Ahmed, Secretary-General of the IFSB.
With the IFSB-17 Standard adopted, the IFSB also expects to prepare, in the coming years, Core Principles for the Islamic insurance (takāful) and Islamic capital market sectors. An initiative in which the Core Principles
assessment methodology would be pilot tested in specific jurisdictions is also on the books.