IFSB to Hold Event in July to Discuss Stress Testing for Islamic Banks

By Regulatory News

May 31, 2019

Stress Testing, Systemic Risk, Basel III

IFSB is organizing its second Executive Program to be held on July 17 and 18, 2019 in Kuala Lumpur, Malaysia. The theme of the executive program is the implementation of effective stress testing and financial safety nets for Islamic banks. This is the second module of the Effective Risk Management series of IFSB that is targeted at the board of directors and senior management of institutions offering Islamic financial services or IIFS. The executive program aims to facilitate a better understanding of the issues confronting the Islamic financial services industry and, thus, contribute toward advancing the development of the industry.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

Related Links

Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

Effective risk management, stress testing, and financial safety nets are important focus areas, given the more challenging global financial environment amid the heightened geopolitical uncertainties and increased potential for financial vulnerabilities as well as the ongoing changes in the dynamics of the financial services industry. The key takeaways from the executive program will include providing insight on implementing effective tools and global standards to strengthen the resilience and stability of the Islamic financial services industry and to address or mitigate a potential financial crisis. The two-day program will include sessions on the following:

Institutions offering Islamic financial services and emerging risks in a changing financial environment
Managing the emerging risks for institutions offering Islamic financial services
Governance of effective stress testing in institutions offering Islamic financial services
Digital transformation of risk management in institutions offering Islamic financial services (experience-sharing)
Effective financial safety nets for institutions offering Islamic financial services: role of Sharīʻah compliant lender of last resort (SLOLR) and Sharīʻah-compliant deposit insurance scheme (SCDIS) in an era of uncertainty
Regulatory priorities in addressing financial stability and evolving risks in the Islamic financial services industry

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Keywords: International, Banking, Stress Testing, Financial Safety Nets, Systemic Risk, Executive Program, Islam Banking, SLOLR, IFSB

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IFSB to Hold Event in July to Discuss Stress Testing for Islamic Banks

By Regulatory News

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