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 Article Explains Process for Bank Authorization in UK

    BoE published an article, in the Quarterly Bulletin for the third quarter of 2019, on how banks are authorized in the UK.

    September 20, 2019 WebPage Regulatory News
    News

    HKMA on Commencement of Regulatory Regime Under Insurance Ordinance

    HKMA announced the commencement of new licensing and regulatory regime for insurance intermediaries under the Insurance Ordinance from September 23, 2019.

    September 20, 2019 WebPage Regulatory News
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    SEC Adopts Rules and Amendments Under Regulatory Regime for Swaps

    SEC announced that it took a significant step toward establishing the regulatory regime for security-based swap dealers (SBSDs) by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.

    September 19, 2019 WebPage Regulatory News
    News

    FCA Welcomes ISDA Protocol on Narrowly Tailored Credit Events

    FCA published an update to its initial joint statement with the U.S. SEC and CFTC on opportunistic strategies in the credit derivatives markets.

    September 19, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    PRA Proposal on Probability of Default and LGD Estimation

    PRA proposed, via the consultation paper CP21/19, an approach to implementing EBA’s recent regulatory products relating to Probability of Default (PD) estimation, Loss Given Default (LGD) estimation, and the treatment of defaulted exposures in the internal ratings-based (IRB) approach to credit risk.

    September 18, 2019 WebPage Regulatory News
    News

    BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SAR

    BIS and HKMA signed the Operational Agreement on the BIS Innovation Hub Center in Hong Kong Special Administrative Region (SAR).

    September 18, 2019 WebPage Regulatory News
    News

    APRA Observations from Thematic Review on Recovery Plans of Insurers

    APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers.

    September 18, 2019 WebPage Regulatory News
    News

    BNM Publishes Financial Stability Review for the First Half of 2019

    BNM published Financial Stability Review for the first half of 2019.

    September 18, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3853