Featured Product

    IFSB Issues Paper on Recovery, Resolution, and Insolvency of IIFS

    December 27, 2017

    IFSB issued a working paper (WP-07) on recovery, resolution, and insolvency issues for Institutions offering Islamic Financial Services (IIFS). The paper sheds light on several legal, structural, and operational issues in the context of recovery, resolution, and insolvency for IIFS. It endeavors to make policymakers, regulators, deposit insurance providers, and individual institutions aware of these challenges. The paper reiterates the need to harmonize Sharīʻah principles of recovery and resolution plans as well as bankruptcy and insolvency frameworks that are embodied in the existing legal systems.

    The working paper also examines the applicability of FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions and other relevant international standards on this subject for IIFS. It identifies gaps in implementation of these standards, since these international standards do not take cognizance of unique characteristics of these institutions. The paper also examines the possibilities of adopting self-insured structures and mechanisms to help safeguard the IFSI. In this regard, bail-in features embedded in Additional Tier 1 and Tier 2 ṣukūk from regulatory and Sharīʻah perspectives are discussed in detail. The paper also attempts to investigate whether the bail-in concept of a mandatory debt write-down by a resolution authority is compatible with Sharīʻah. Overall, the paper aims to:

    • Review the requirements of a robust recovery and resolution framework through literature review and jurisdictional analysis
    • Consider and analyze key recovery, resolution, and bankruptcy principles in the context of Islamic finance industry practices and Sharīʻah requirements
    • Indicate issues that require further consideration by regulatory authorities/policymakers and IIFS regarding recovery, resolution, and bankruptcy

    Additionally, the paper examines the treatment of investment account holders in an insolvency and the treatment of the profit equalization reserve (PER) and investment risk reserve (IRR) funds in this scenario. The discussions also highlight Sharīʻah debates on whether any profit-sharing investment accounts should be afforded Sharīʻah-compliant deposit insurance scheme, given their risk-sharing nature. The paper also focuses on recovery and resolutions aspects for debt-based contracts in Islamic finance, since a majority of global Islamic banking assets are based on these contracts.

     

    Related Links

    Keywords: International, Banking, Islamic Banking, IIFS, Recovery and Resolution Planning, IFSB

    Related Articles
    News

    BoE Provides Reporting Update on Form AS and Form FV

    BoE updated the known issues document for the statistical reporting Forms AS and FV.

    August 10, 2020 WebPage Regulatory News
    News

    EBA Provides Clarity on Implementation of Guidance on COVID Reporting

    EBA updated the report on the implementation of selected COVID-19 policies.

    August 07, 2020 WebPage Regulatory News
    News

    OSFI Provides Update on Implementation of IFRS 17 in Canada

    OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.

    August 07, 2020 WebPage Regulatory News
    News

    FSI Note Discusses Challenges Associated with COVID Relief Measures

    The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.

    August 06, 2020 WebPage Regulatory News
    News

    BCBS Consults on Principles for Operational Risk and Resilience

    BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.

    August 06, 2020 WebPage Regulatory News
    News

    BoE Updates Template and Definitions for Form ER

    BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.

    August 05, 2020 WebPage Regulatory News
    News

    MAS Announces Key Initiatives to Support Adoption of SORA

    MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.

    August 05, 2020 WebPage Regulatory News
    News

    HKMA Announces Repayment Deferment Under Payment Holiday Scheme

    HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.

    August 05, 2020 WebPage Regulatory News
    News

    ESRB Paper Presents Alternative Approach to EBA Stress Test Proposal

    The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.

    August 05, 2020 WebPage Regulatory News
    News

    FASB Simplifies Accounting for Certain Financial Instruments

    FASB issued a new Accounting Standards Update (2020-06) to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity.

    August 05, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5642