AAOIFI releases 100th standard, on Central Shari'ah Boards

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and shari’ah standards for Islamic financial institutions and the industry, has issued its Governance Standard for Islamic Financial Institutions (GSIFI) No. 8 on Central Shari’ah Boards via its Governance and Ethics Board (AGEB).

This marks the issuance of 100 standards so far in areas of accounting, auditing, governance, ethics as well as shari’ah since AAOIFI's inception, a span of 27 years. 

“This is a giant leap towards improvements in the overall shari’ah governance and compliance environment for the broader Islamic finance industry. We hope that this standard will support the regulators in establishing uniform practices for establishing and operating shari’ah boards at jurisdiction level and will help in streamlining the Islamic banking and finance practices, within and across jurisdictions in line with the tenets of shari’ah,” said Dr Ishrat Hussain, Chairman, AGEB. 

“We have interacted with industry and regulators at a larger canvas for developing this standard. A survey with experts was conducted and public hearing sessions were held between April and July 2017 in Bahrain, UAE, Turkey, and Pakistan in addition to the comments of a number of experts received in writing.”

The new standard aims provide guidance and foundations that define key terms of reference and principles when establishing such boards. It provides detailed guidance on the definition, scope of work, responsibilities, appointment, composition, independence, terms of reference of a Central Shari’ah Board (CSB) and other relevant issues.

Although the standard encourages the creation of CSBs at national levels, the guidance provided would standardise the global regulatory practices in this respect. The standard also presents a country-level approach for regulating the Islamic finance industry within borders, including products, practices, and operations. It is expected that such CSBs will adopt AAOIFI’s shari’ah standards to standardise practices.

Explore:

Read the final draft on the AAOIFI website

Meethaq concludes first Shari'a Supervisory Board meeting for 2016

The Meethaq Shari’a Supervisory Board led by Sheikh Dr Ali Qaradaghi, Chairman, has completed its first meeting of 2016. Meethaq is the Islamic banking arm of Bank Muscat.

The board reviewed new products and services to be introduced in 2016, especially electronic banking services aimed at further adding value and convenience to Meethaq customers. The meeting also reviewed corporate finance.

Sulaiman Al Harthy, Deputy Chief Executive Officer – Meethaq Islamic Banking, said: “The Meethaq Shari’a Supervisory Board discussed many important topics to consolidate the leading position of Meethaq Islamic Banking in terms of financing receivables, branch network, products and services, IT infrastructure and human resources. Meethaq is proud to have on board some of the brightest minds on Islamic finance to chart the way forward. The Shari’a Board has made valuable contributions in establishing Meethaq as the leading Islamic banking service provider in Oman.”

In 2015 Meethaq recorded many milestones. Redefining exclusive and relationship based Islamic banking experience, Meethaq launched the Hafawa Priority Banking service for high savings Meethaq customers in 2015. The Hafawa network includes eight centres in Meethaq branches in Qurm, Al Khoud, Seeb, Saham, Ibra, Nizwa, Buraimi and Salalah. Meethaq plans to further expand the Hafawa network.

Finance facilities offered by Meethaq included the refinancing facility of RO78 million signed with Oman Shipping Company for its three very large crude carriers. Meethaq also extended Oman’s first and only shari’ah based aircraft finance to the national carrier Oman Air for acquiring its second Boeing 787 Dreamliner.

Islamic financing receivables amounted to RO635 million in 2015 compared to RO400 million in 2014. Islamic banking customer deposits amounted to RO625 million in 2015 compared to RO283 million in 2014.

Presently, Meethaq has 17 branches across the Sultanate and plans to expand the network as well as launch new products and services to complement the Islamic banking experience. The bank has invested in staff, systems and controls to ensure the service is delivered in a professional, segregated and fully shari’ah compliant manner. Meethaq offers a full suite of Islamic banking products and services, including savings accounts, current accounts, home finance, auto finance, credit cards and mobile banking.

BNM governor lays out success factors for investment accounts

The Islamic Financial Services Board (IFSB) has built a solid global reputation as a prudential standard-setting body for Islamic finance, said Bank Negara Malaysia Governor Tan Sri Dato' Sri Dr Zeti Akhtar Aziz in opening remarks at the IFSB's Meet the Members & Industry Engagement Session in Kuala Lumpur in late January. "The initiatives and milestones achieved by the IFSB have indeed paved the way for jurisdictions across the globe to build a solid foundation for the progressive growth of Islamic finance that is underpinned with stability," she said.

Dr Zeti also observed that the IFSB has made significant advancements in taking forward the recommendations made in the Islamic Finance and Global Financial Stability Report 2010 towards achieving financial stability in the national and the international Islamic financial system. "The effective implementation of the standards issued by the IFSB is key towards promoting the soundness and stability of Islamic financial institution. To enhance this prospect, the IFSB has strengthened its role in facilitating greater jurisdictional preparedness in the adoption of these standards through the provision of technical assistance to its members," she said.

"Malaysia is one of the jurisdictions that has adopted and operationalised the prudential standards and the guiding principles that have been issued for the industry. The implementation of these standards and guiding principles support the regulatory framework that we now have in place in our Islamic financial system."

Dr Zeti said that Islamic banks in Malaysia now have the potential to be better able to pursue their role as investment intermediaries through the offering of investment accounts in addition to the entrenched deposit products. The legal recognition of investment accounts in the Islamic Financial Services Act 2013 (IFSA) differentiates between deposit accounts and investment accounts while offering a new investment avenue, one that is being channelled to finance entrepreneurship, she pointed out.

Dr Zeti highlighted the Investment Account Platform (IAP) that is currently being developed for its growing popularity. The IAP will provide a centralised multi-bank platform as a new financing option for entrepreneurs with viable projects as well as an opportunity for the investing public to finance these projects, she noted.

"It is encouraging that to date, eight Islamic banks are offering investment accounts to their customers. More are expected to follow when the value proposition of such investment accounts, with its unique features and the different target market become better understood. The industry-led communication by the Association of Islamic Banking Institutions Malaysia will contribute towards increasing the awareness of customers on the concept and on the key features of investment account. The latest establishment of a consortium developed by four Islamic banks to develop and operate the IAP which is to be launched next month is also another initiative to advance this new offering," she revealed.

Dr Zeti also listed some of the prerequisites for a successful introduction to the investment account. "In the development of the investment account, it will be essential for Islamic banks, investors and entrepreneurs to embrace the different approaches in the management of the risk and return relationships that are embedded in the variations of the shari'ah contracts used in such investment accounts. These relationships need to be well understood by the parties involved and which are aligned with clear contractual and operational requirements.

"The IFSB has an important role in not only providing guidance but also in initiating the convergence of the different practices between IFSB members with regard to the treatment of the investment account - also referred to as profit sharing investment account (PSIA) - in the IFSB standards. More in-depth work can also be explored by the IFSB on the prudential requirements for the investment account to further ensure a conducive environment for such risk-sharing offerings," she said.

The global Islamic financial system is now operating at a time when the international economic and financial environment has become immensely more challenging. New risks that are more complex, with more profound systemic implications are emanating with the increasing forces of financial liberalisation, globalisation, technological advancement, intensified competition, financial innovation and the internationalisation of Islamic finance. Cumulatively, these developments necessitate greater prudential regulation and supervisory oversight to ensure a resilient and sustainable financial system.

Dr Zeti said the role of the IFSB remains instrumental to the industry, especially internationally, and called for members to continue their support for the IFSB. "Greater concerted efforts by members to consistently adopt and implement the prudential standards issued by the IFSB will not only contribute towards preserving financial stability but it will also enhance regulatory harmonisation across jurisdictions," she said.

"Malaysia, as the host of the IFSB will continue to be committed to support its development and its potential as a prudential standard-setting body in the international financial system."

Interested?

Read the full speech

IFSB to hold roundtable on retakaful in January 2016

The Islamic Financial Services Board (IFSB) is organising a roundtable about retakaful on 10 January 2016 in Manama, Bahrain. The Roundtable Discussion on Retakāful (Islamic Reinsurance) aims to discuss the issues contained in the recently-issued IFSB Exposure Draft on Guiding Principles for Retakāful (Islamic Reinsurance) (ED-18). The event is hosted by the Central Bank of Bahrain. 

ED-18 aims to provide the regulatory and supervisory authorities (RSAs) and takāful industry stakeholders with guidance relating to retakāful. The draft document was issued by the IFSB on 5 November 2015 for a two-month public consultation period.

ED-18 highlights the distinguishing features of the various retakāful models used for inward and outward retakāful arrangements. It also identifies the challenges that require attention of regulatory and supervisory authorities pertaining to the regulation and supervision of retakāful activities. The objectives of ED-18 include: 

• To provide a basis for RSAs to set rules and guidance on the operational framework of entities undertaking inward retakāful activities; 
• To outline a basis for RSAs to supervise takāful and retakāful undertakings’ use of outward retakāful arrangements; and 
• To suggest recommended best practices for retakāful and takāful operators and their RSAs to help address regulatory issues concerning retakāful. 

The Roundtable Discussion on ED-18 aims to invite greater engagement, and garner feedback, from key industry stakeholders on the Exposure Draft prior to its final submission to the IFSB Council in April 2016 for adoption. It is the second such session to allow feedback on the draft ED-18 document. The first was a Public Hearing held in Kuala Lumpur, on 30 November 2015.

Confirmed speakers from Malaysia include Dr Mohamed Rafick Khan Abdul Rahman, Chief Executive Officer, Munich Re Retakāful; Dr Hamim Syahrum Ahmad Mokhtar, Deputy Director, Financial Surveillance Department, Bank Negara Malaysia; and Dr Sami Guellouz, General Manager, B.E.S.T Re Family. Other speakers include Scott Lim, Associate Director, Dubai Financial Services Authority; Moch Mochlasin, Directorate of Sharia NBFI, Financial Services Authority, Indonesia; and Naveed Shahid, Head of Life & Health, Hannover Re, Bahrain. 

Interested?

Participation is open to all RSAs as well as players in the takāful and retakāful industries. Register

IFSB shares second Strategic Performance Plan

The Islamic Financial Services Board (IFSB) Council has approved the second Strategic Performance Plan (SPP), for the years 2016 to 2018. The new plan builds on the previous SPP and the lessons learnt in executing it, along with the recognition of the need for the IFSB to evolve in response to changes in its operating environment.

The four strategic key results areas identified in the SPP 2016-2018 are:

• Formulation and issuance of prudential standards and studies for the regulation of the Islamic financial services industry
• Facilitating the implementation of prudential standards and capacity development
• Increasing awareness and knowledge sharing
• Enhancing cooperation with Islamic finance stakeholders

The SPP 2016-2018 aims to continue the IFSB’s focus on its core mandate, the formulation and facilitation of prudential standards for the banking, takāful, and Islamic capital Market sectors with an overarching objective of ensuring the stability and resilience of the Islamic financial services industry (IFSI).

These prudential standards are benchmarked against those issued by global standards bodies such as the Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS) and International Organization of Securities Commissions (IOSCO), but also include standards that are unique to Islamic finance. The SPP 2016-2018 also focuses on the development of the Islamic financial services industry and its growing interconnectedness with global finance.

Interested?

More information on the SPP 2016-2018 will be available on the IFSB website in due course.

IFSB announces new members

The Council of the Islamic Financial Services Board (IFSB) has approved the admission of six organisations into the IFSB membership. These include one supervisory authority as an Associate Member, and two supervisory authorities as well as three financial institutions as Observer Members.

IFSB membership is available in three categories: Full Member, Associate Member and Observer Member. The Full Membership, which is the sole membership with voting rights, is available to the financial sector supervisory authorities of each sovereign country.

The new members are the Bank of England as an Associate Member, as well as the following Observer Members:

National Bank of the Kyrgyz Republic
Securities and Exchange Commission of Pakistan
Abu Dhabi Islamic Bank, Egypt
Amana Bank, Sri Lanka
Ziraat Katilim, Turkey

The Council has also upgraded the National Bank of Kazakhstan from an Associate to a Full Member. This brings the membership of the IFSB Council to 23, consisting of central bank Governors from 22 countries, plus the President of the IDB. 

To date, the 189 members of the IFSB consist of 65 supervisory and regulatory authorities from the banking, capital markets and Islamic insurance (takāful) sectors from 47 jurisdictions, as well as eight international intergovernmental organisations, and 116 market players (financial institutions, professional firms and industry associations).

Interested?

The full list of IFSB members is available on the IFSB website 

IFSB fleshes out PSIFI database

The Islamic Financial Services Board (IFSB) has released a second set of its Prudential and Structural Islamic Financial Indicators (PSIFIs) from 16 member countries, dating from December 2013 to December 2014.

Secretary-General of the IFSB Jaseem Ahmed said, “In the context of the heightened awareness of vulnerability of all financial systems to a range of risks, the PSIFI provides a new tool for monitoring the soundness and stability of Islamic finance.

"The support of multilateral organisations – such as the IMF, ADB and IDB – have greatly assisted the progress on this project. It is our aim to continue to expand the scope of the PSIFI to include the participation of new jurisdictions, as well as expansion of data to the Islamic capital market and takāful sectors of the industry.”

PSIFIs aim to provide data on the financial soundness and growth of the Islamic banking systems in participating IFSB member jurisdictions. The first set of data was released on 27 April 2015 covering the period up to December 2013. The second release adds the indicators for the four quarters of 2014, with necessary adjustments and revisions to the earlier data set. It thus provides more complete data than the earlier release as many member jurisdictions have improved their data collection and consolidation framework for the Islamic banking industry in line with the requirements of PSIFI project.

The Task Force on PSIFIs – which includes representatives from 16 member jurisdictions as well as international organisations such as the IMF – updated some indicators after the first release to enhance their clarity and consistency across jurisdictions. In the new release, a number of jurisdictions have also started reporting of the data on macro-prudential indicators such as assets held by domestic systemically important banks, leverage ratio, as well as liquidity coverage ratio (LCR).

The countries participating in this project are: Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, and Turkey.

The IFSB is now collecting data for the first two quarters of 2015 which will be targeted for dissemination in Q1 of 2016.

Interested?

The complete PSIFI Database, including metadata, is available on the PSIFI portal at the IFSB website

Read the IFSB PSIFI Brief for more background \

IFSB plans workshops for banking, takaful and the Islamic capital market

The Islamic Financial Services Board (IFSB) will be organising three FIS workshops for banking, takaful and the Islamic capital market in October and November 2015 in Kuala Lumpur, Malaysia. 

The workshops are designed to enhance participants’ understanding of the respective standards and guiding principles applicable to each sector. The workshops also aim to assist the participants in the practical application of the issues addressed in the particular standard through case studies, group exercises, and other interactive tools; and to promote the sharing of experiences among regulators and market players on the implementation of the respective IFSB standards. The organisation invites all regulatory and supervisory authorities from among IFSB member countries to participate.

FIS workshop for the Islamic capital market sector

19 to 21 October 2015

This workshop covers:

• Introduction to Islamic capital markets 
• Sharing of country experiences on the strategies and policies for developing vibrant Islamic capital markets
• Revised capital adequacy standard for institutions offering Islamic financial services (IIFS) (IFSB-15)
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) and Guiding principles on governance for Islamic collective investment schemes (ICIS) (IFSB-6)

FIS workshop for the takaful sector 

19 to 21 October 2015
This workshop covers: 

• Introduction to takaful
• Sharing of country experiences on the strategies and policies for developing a robust takaful industry
• Standard on risk management for takaful undertakings (IFSB-14)
• Standard on solvency requirements for takaful undertakings (IFSB-11), 
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) and 
• Guiding principles on governance for takaful undertakings (IFSB-8).

FIS workshop for the banking sector

16 to 20 November 2015

This workshop covers: 

• Revised guidance on key elements in the supervisory review process (IFSB-16) 
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) 
• Guidance note on quantitative measures for liquidity risk management (IFSB-6) 
• Recent developments in the supervisory review process framework and liquidity risk management at the global level

Interested?

Contact Hamizi Hamzah at hamizi at ifsb.org.

IFSB, INCEIF renew cooperation agreement

The Islamic Financial Services Board (IFSB) and INCEIF – The Global University of Islamic Finance have renewed an agreement to facilitate international cooperation between the two organisations to provide relevant activities relating to capacity building and awareness promotion in Islamic finance. The Memorandum of Understanding (MoU) was signed on the sidelines of the 12th IFSB Summit in Almaty, Kazakhstan on 19 May.

This mutual co-operation aims to strengthen the efforts of the two institutions in promoting an exchange of information, undertaking research, development, training and education in the Islamic financial services industry. More specifically, the MoU identifies the following areas of cooperation between the IFSB and INCEIF: 

• Jointly exploring and undertaking various research issues concerning Islamic financial services industry. 
• Providing reciprocal staff development and exchange programmes. 
• Building awareness among the industry players through jointly conducting learning and awareness programmes including among others: conferences, seminars, workshops, roundtables, trainings (including custom-designed learning and training programmes). 
• Cooperating in providing technical assistance to facilitate the implementation of the IFSB standards and to assist in building the necessary financial infrastructure for development of a sound and stable Islamic financial services industry. 

Under the first MoU, signed in 2012, the IFSB and INCEIF successfully held a series of six Executive Forums (EF) covering topics in Islamic finance. The IFSB-INCEIF Executive Forums on Islamic Finance aim to provide a platform for industry’s global leaders to discuss emerging issues facing the global Islamic financial services industry with an emphasis on issues related to supervision and prudential regulation at the national and international levels.

The next Executive Forum on Islamic Finance, themed Building Momentum for Islamic Liquidity Management, will be held 3 to 4 June 2015 in Kuala Lumpur, Malaysia.

IFSB core principles for Islamic finance regulation approved by council

The Islamic Financial Services Board (IFSB) has announced that the Council of the IFSB at its 26^th 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.