IFSB invites comments for three Exposure Drafts

The Islamic Financial Services Board is working on a consultation paper which examines areas like corporate governance, Takaful and the role of Shari’ah boards and has issued three drafts for the public to comment on.

The Technical Committee of the Islamic Financial Services Board (IFSB) has recently issued three exposure drafts for public comment. They are:

ED-8: Guiding Principles on Governance for Islamic Insurance (Takaful) Operations

Part I recommends the adoption of good governance practices as prescribed by other international standards for insurance companies, while also addressing the specific needs of Takaful undertakings, while part II explains the appropriate governance structure and processes, including the relevant transparency and disclosure practices that adequately address the needs and interests of all stakeholders, with particular reference to Takaful participants. Part III relates to the general approach to sustaining a Takaful undertaking's solvency and promoting sound investment management of its assets.

ED-9: Conduct of Business for Institutions offering Islamic Financial Services (IIFS)

The IFSB said that ED-9 aims to promote a climate of confidence and a supportive environment in the business of the Islamic financial services industry by upholding and strengthening the relevant moral, social and religious values in business practices.

“These principles,” it says, “are desired from institutions that offer Islamic financial services (IIFS) not only because of Shari`ah obligations and requirements, but also because they serve to manage operational risks of the IIFS, particularly reputational risk.”

Apart from complementing the IFSB standards and guidelines, the document addresses the specificities of the IFSI. It thereby aims to ‘add value’ to other existing internationally recognised frameworks that set out sound principles and best practices pertaining to the conduct of business of participants and institutions in the conventional banking, insurance and capital market industry segments.

ED-10: Guiding Principles on Shari`ah Governance System

ED-10 aims to highlight to the supervisory authorities in particular, and the industry's other stakeholders in general, the components of a sound Shari`ah governance system, especially with regard to the competence, independence, confidentiality and consistency of Shari`ah boards. The ED has five parts:

·         Part I explains the general approach to a Shari`ah governance system, whereby various globally accepted ex-ante and ex-post governance processes are adapted in order to strengthen the Shari`ah governance system. These processes include, among others, terms of reference for Shari`ah boards, appropriate alignment of incentives, proper record-keeping, and adoption of a professional code of ethics;

·         Part II addresses the issue of competence by proposing various measures and criteria to ensure a reasonable level of expertise and skill-sets for members of Shari`ah boards. The proposed measures and criteria are intended to act as the basis for evaluating the performance of Shari`ah boards and determining their professional development;

·         Part III focuses on safeguarding the independence of Shari`ah boards, particularly from the management of IIFS, by highlighting various issues arising from potential conflicts of interest and recommending approaches for managing them;

·         Part IV highlights the importance of observing and preserving confidentiality by the organs of Shari`ah governance;

·         Part V emphasises a set of best practices that aim to maintain the appropriate level of professionalism among the members of the Shari`ah board.

The IFSB Secretariat said it would like to invite all IFSB members to share their input and comments on the drafts for the respective working group review and further action. All three exposure drafts are downloadable from the IFSB website (www.ifsb.org), and those who are interested may email their comments to ifsb_sec@ifsb.org. The Public Consultation period for the drafts end on 15 May 2009 and they are scheduled for adoption by the end of the year.

The IFSB is holding a Public Hearing on the Exposure Drafts on 5 May 2009 in Singapore, prior to the 6^th IFSB Summit. All members of the IFSB are invited to attend the session. Details of the Public Hearing and the Summit can be seen at www.ifsbsingapore2009.com

Link: http://www.cpifinancial.net/v2/fa.aspx?v=0&aid=205&sec=Islamic%20Finance