IFSB published an exposure draft on the revised capital adequacy standard for institutions offering Islamic banking services. The aim of exposure draft is to align the IFSB capital adequacy standard (IFSB-15) with global capital standards, particularly the Basel III final reforms. The comment period for the exposure draft ends on January 02, 2020. IFSB invites comments from central banks, regulatory and supervisory authorities, international organizations, institutions offering Islamic financial services, academics, and other interested parties. The enhancements to credit, market, and operational risk frameworks, as well as the leverage ratio framework, should be implemented by January 01, 2022.
The enhancements to the components of capital, capital conservation buffer (CCB), countercyclical capital buffers (CCyB), and Islamic windows operations are expected to be implemented immediately by the regulatory and supervisory authorities in their jurisdictions. Regulatory and supervisory authorities may consider earlier implementation timelines wherever feasible, taking into account an adequate period for the transposition of the standard into national supervisory regulations and guidelines for institutions offering Islamic financial services. The revised standard provides enhanced guidance to the regulatory and supervisory authorities, along with the necessary flexibility for its application across regions, and to the small to fairly large and sophisticated institutions offering Islamic financial services. The main objectives of the standard include the following:
- Assist the institutions offering Islamic financial services and their supervisory authorities in the implementation of a capital adequacy framework that will ensure effective coverage of risk exposures of the institutions and allocation of appropriate capital to cover these risks, thus enhancing the resilience of the the Islamic financial services industry
- Provide enhanced guidance on the maintenance of high-quality regulatory capital components by the institutions offering Islamic financial services, which comply with Sharī`ah rules and principles
- Enhance the guidance provided by the earlier IFSB capital adequacy standards in addressing the capital adequacy requirements of various risk exposures related to Sharī`ah-compliant products and services offered by the institutions offering Islamic financial services
- Provide enhanced guidance on the capital adequacy treatment of an institution's involvement in Sukūk issuance and securitization processes in various capacities
- Address specific concerns in the course of implementation of the earlier IFSB capital adequacy standards and guidance notes
- Adapt international best practices, as well as current and emerging standards, relating to the capital adequacy for the institutions offering Islamic financial services
Comment Due Date: January 02, 2020
Keywords: International, Banking, Capital Adequacy, Basel III, Islamic Banking, Securitization, IFSB 15, IFSB
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