The Islamic Financial Services Board (IFSB) is consulting, until June 23, 2022, on an exposure draft of the revised Sharīʻah governance framework for institutions offering Islamic financial services.
The draft standard sets out the following revised set of guiding principles on the key components of a sound and effective Sharīʻah governance framework for institutions offering Islamic financial services:
- An institution must have in place a comprehensive Sharī`ah Governance Framework that encompasses a set of institutional and/or system-wide arrangements for the effective and independent oversight of Sharī`ah compliance of its products and services, processes, and business operations.
- The Regulatory and supervisory authorities shall have adequate understanding of Sharīʻah noncompliance risks and accordingly ensure that the institutions have in place an adequate and effective Sharīʻah Governance Framework and reporting mechanism.
- Regulatory and supervisory authorities and/or governments are strongly recommended to establish and appropriately empower Central Sharīʻah Boards to harmonize Islamic banking and finance practices in the jurisdiction, in line with Sharīʻah principles and rules.
- An institution must ensure that its Sharīʻah governance framework includes, at a minimum, Sharīʻah Supervisory Board, Sharīʻah Compliance Function, Internal Sharīʻah Audit Function, and Independent External Sharīʻah Audit.
- An institution must clearly define the roles and responsibilities of its Board of Directors, Senior Management, and others toward upholding the Sharīʻah compliance of its activities and operations.
- An Islamic Window of a Conventional Financial Institution must have a suitable Sharīʻah governance framework in place to ensure effective Sharīʻah compliance of its operations.
- An Islamic subsidiary/affiliate of a Conventional Financial Institution must have a suitable Sharīʻah governance framework in place to ensure effective Sharīʻah compliance of its operations.
- An institution is responsible to ensure that it prudently recognizes any additional considerations or exceptional circumstances that may require it to apply proportionality and/or other considerations toward implementation of the principles of this standard.
- An institution shall be transparent in its Sharīʻah governance to its shareholders, customers, other relevant stakeholders, and market participants.
This draft standard applies to institutions offering Islamic financial services in the Islamic banking, Islamic insurance, and Islamic capital market sectors. Regulatory and supervisory authorities may choose to apply this standard to other institutions offering Islamic financial services in their jurisdictions. The standard adopts a principle-plus-rule approach that provides a comprehensive set of Sharīʻah governance practices for implementing each principle.
Keywords: International, Banking, Securities, ESG, Governance, Islamic Finance, IFSB, Insurance, Islamic Banking
Previous ArticleDNB Publishes Multiple Regulatory and Reporting Updates in June 2022
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.