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May 24, 2018

The Executive Board of the IMF endorsed the proposal on the use of the core principles for Islamic finance regulations (CPIFR), which were developed by IFSB with the participation of the Secretariat of BCBS. IMF also published the paper proposing to incorporate the Core Principles for Islamic Finance Regulations (CPIFR) for banks. The paper sought endorsement from the Executive Boards of the World Bank and the IMF on the use of the CPIFR and its assessment methodology. CPIFR are intended be a set of core principles for the regulation and supervision of the Islamic banking industry and are designed to take into consideration the specificities of Islamic banks.

The paper had proposed to incorporate the CPIFR (Banking Sector) issued by IFSB, as part of the standards used in assessing the banking regulatory and supervisory regimes of relevant member jurisdictions under FSAP and the Reports on Observance of Standards and Codes (ROSCs). The CPIFR largely reflects the order of the Basel Core Principles on Effective Banking Supervision (BCP), with five additional principles that are specific to Islamic banking operations. Thus, for countries that have a systemically significant Islamic banking sector, the assessment of the banking regulation and supervision regime of the jurisdiction would be against the CPIFR (for fully Islamic banking systems) or BCP and the five additional core principles under the CPIFR (for dual banking systems). The IMF Directors broadly endorsed the use of CPIFR and their assessment methodology for undertaking financial sector assessments and preparing ROSCs initiated after January 01, 2019, on the effectiveness of regulation and supervision of Islamic banks.

The CPIFR will complement the international architecture for financial stability, while simultaneously providing incentives for improving the prudential framework for Islamic banking industry across jurisdictions. The CPIFR and the associated methodology will be applied in financial sector assessments undertaken in fully Islamic banking systems and, as a supplement to BCP, in dual banking systems where Islamic banks have a significant market share (of 15% or more). For countries in which the share of Islamic banks is below this threshold, the adoption of the CPIFR could be supported through technical assistance (when requested by the member) to help nascent financial systems to develop safely and sustainably. 

 

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Keywords: International, Middle East and Africa, Banking, Islamic Banking, CPIFR, Assessment Methodology, Financial Stability, IFSB, BCBS, IMF

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