IFSB to focus on issues related to Islamic finance stability

THE Islamic Financial Services Board (IFSB) Council has resolved to discuss pertinent issues related to financial stability in future meetings, particularly those concerning the Islamic financial services industry.

In a statement yesterday, the IFSB said that its inaugural forum on financial stability issues will be held in April next year in Khartoum, Sudan. The forum will follow the 16th Meeting of the IFSB Council there.

The IFSB also said the development of the agenda for the forum would give priority to capacity building and financial stability and be spearheaded by Bank Negara Malaysia Governor, Tan Sri Dr Zeti Akhtar Aziz.

"As Islamic finance continues to be an integral part of the global financial system, the forum aims to be a dialogue to explore the scope for the current framework of cooperation to be strengthened and broadened. "This is especially to address the new challenges that have emerged in the aftermath of the global financial crisis," it added.

The IFSB Council had at its 15th meeting in Kuala Lumpur on Monday, discussed a memo on Islamic Finance and Global Financial Stability.

The meeting, hosted by Bank Negara, was chaired by Dr Muhammad Sulaiman Al-Jasser, Governor of the Saudi Arabian Monetary Agency, and attended by the president of the Islamic Development Bank, central bank governors and governors' representatives of the IFSB's 21-member council.

The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry.
Link: http://www.btimes.com.my/Current_News/BTIMES/articles/fisbo/Article/index_html

Islamic industry board sets new financial standards

The Islamic Financial Services Board, which sets standards for the sharia finance industry, has adopted new guidelines to enhance the sector's stability.

The guidelines relate to the Islamic insurance industry, the conduct of Islamic financial institutions and the sharia governance system, the board said in a statement.

The full guidelines are available on the board's website at www.ifsb.org.

Compliance with the Kuala Lumpur-based board's standards is voluntary. Islamic banks are governed by the regulatory authorities in their respective jurisdictions.

Link: http://in.reuters.com/article/fundsNews/idINKLR47993620091124

IFSB takes a look at legal angles in Islamic finance

Fourth IFSB seminar on legal issues in the Islamic financial services industry to be held in Malaysia.

The specificities of Shari`ah-compliant financial services offered by banking and financial institutions need to be supported by a strong legal framework, according to the Islamic Financial Services Board (IFSB).

It says that legal firms rendering services to institutions Islamic financial services (IIFS) need to understand the specificities of these institutions and the parameters in which they operate as well as establish a legal framework within these parameters.

The IFSB is orgranising it’s fourth seminar on Legal Issues in the Islamic Financial Services Industry on 28-29 September 2009.

The IFSB said the seminar aims to achieve the following objectives:

• To collect and record data on the various legal environments in which IIFS operate, and draw from the experiences of different jurisdictions in order to better understand and analyse the effectiveness of appropriate legal and regulatory framework for Islamic finance;
• To review the legal requirements in specific areas which are developing but critical in driving the industry forward. In particular, to focus on areas such as Shari`ah Board's functions, liquidity management and dispute resolutions; and
• To discuss in depth the interface between the Shari`ah and modern legal frameworks, as such interaction is fundamental to every single Shari`ah-compliant finance contract used by IIFS. This requires that the knowledge and understanding of Shari`ah scholars and legal practitioners of these issues are both hands-on and up-to-date at all times.

The Seminar will attempt to contribute to the Shari`ah and legal aspects of the Islamic financial services industry by discussing the following topics:

• Recent experiences in introducing legal and regulatory framework for Islamic financial services;
• Shari`ah and legal issues in Islamic structured products;
• Insolvency and asset recovery framework: gaps and challenges;
• Interlink/interface between civil law systems and Shari`ah rules and principles and effective dispute resolution mechanism; and
• Challenges in managing legal risks in Islamic financial services: case studies.

The keynote address of the seminar will be delivered by Sir William Blair, High Court Judge of the Queen's Bench Division while the opening address will be by Professor Rifaat Ahmed Abdel Karim, Secretary-General of the IFSB. Joining them are 17 chairpersons and speakers from among the leading industry experts. The confirmed personalities are:

1. Y.Bhg. Tun Abdul Hamid Haji Mohamad, Member, National Shariah Advisory Council, Bank Negara Malaysia and former Chief Justice of the Federal Court, Malaysia

2. Gopala Krishnan Sundaram, Assistant-Governor, Bank Negara Malaysia

3. Thomas C. Baxter, General Counsel and Executive Vice President, Federal Reserve Bank of New York

4. Dato’ Dr Nik Ramlah Nik Mahmood, Managing Director, Securities Commission, Malaysia

5. Dr. Mohamed Akram Laldin, Executive Director, International Shariah Research Academy

6. Stefan Gannon, General Counsel, Hong Kong Monetary Authority

7. Ashraf Mohammed, Principal Counsel, Asian Development Bank

8. Roberta Calarese, Legislative Counsel and Director in Policy and Legal Services Division, Dubai Financial Services Authority, UAE

9. Mansoor Shakil, Director - Asset Management Group, Al Rayan Investment L.L.C., Qatar

10. Dr. Mahmood Ahmad Ghazi, Professor of Shariah, Qatar Faculty of Islamic Studies, Qatar

11. Muddassir Siddiqui, Partner, Head Islamic Finance – Middle East, Denton Wilde Sapte, UAE

12. Hanim Hamzah, Resident Partner, Roosdiono & Partners, Indonesia

13. Michael J.T. McMillen, Partner, Fullbright & Jaworski LLP, New York, USA

14. Yeo Wico, Partner, Allen & Gledhill, Singapore

15. Hamid Yunis, Partner, Taylor Wessing, UK

16. Dr. Charles Proctor, Partner, Bird & Bird, UK

17. Me Nada Abdelsater-Abusamra, Partner, Raphael & Associes Law Firm, Lebanon

Link: http://www.cpifinancial.net/v2/News.aspx?v=1&aid=3081&sec=Islamic%20Finance

Islamic banks survive crisis: IFSB official

Islamic banks have demonstrated relative resilience to the global financial crisis but they can be affected like any other financial institution if the crisis continues, according to an Islamic finance expert.

Islamic banks have demonstrated relative resilience to the global financial crisis but they can be affected like any other financial institution if the crisis continues, according to an Islamic finance expert. Talking to The Peninsula on the sidelines of the Qatar Law Forum on May 30, 2009, Professor Refaat Abdel Karim, Secretary-General of the Islamic Financial Services Board (IFSB) based in Malaysia said, “Islamic banks have survived the crisis because they prohibited to participate in toxic assets. However, since the financial crisis have transformed into an economic crisis, these banks can also be affected, like any other financial institution.” He said there was an increased demand for Islamic financing after the global crisis. However to present itself as a global alternative, Islamic financing need to develop a legal infrastructure and liquidity infrastructure. He added that the IFSB had been working towards achieving this goal. The IFSB serves as an international standard-setting body of regulatory and supervisory agencies in Islamic financial services industry that include banking, capital market and insurance. The Board promotes the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Shari’ah principles, and recommend them for adoption. The 178 members of the IFSB include 42 regulatory and supervisory authorities as well as International Monetary Fund, World Bank, Bank for International Settlements, Islamic Development Bank, Asian Development Bank and the Islamic Corporation for the Development of Private Sector, Saudi Arabia, and 130 market players and professional firms operating in 34 jurisdictions. Malaysia, the host country of the IFSB, has enacted a law known as the Islamic Financial Services Board Act 2002, which gives the IFSB the immunities and privilege  The IFSB is actively involved in the promotion of awareness of issues that are relevant or have an impact on the regulation and supervision of the Islamic financial services industry. This mainly takes the form of international conferences, seminars, workshops, trainings, meetings and dialogues staged in many countries. Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=3590&Cat=0

‘Islamic finance must remain responsive to change’

The consensus was predictably mature amongst regulators and dignitaries at the Sixth Annual Summit of the Islamic Financial Services Board (IFSB) held on May 7, 2009 and May 8, 2009 in Singapore.

The consensus was predictably mature amongst regulators and dignitaries at the Sixth Annual Summit of the Islamic Financial Services Board (IFSB) held on May 7, 2009 and May 8, 2009 in Singapore. These included the intrinsic strengths of the Islamic financial sector which supposedly puts emphasis on financing the real economy; that much work needs to be done to ensure the robustness of the industry; that future growth will only come with innovation, which in the light of the global financial crisis has assumed a certain negativity; and that to meet the future challenges of global financial services, the Islamic finance sector needs to be further regulated. But behind the scenes amongst the market players attending the summit, there was an acceptance of inevitability that these ambitions will take time to realize because the very members of organizations such as the IFSB, the Islamic Development Bank (IDB) and others, still are not on the same wavelength when it comes to Islamic finance architecture; and that standards issued by the IFSB and the like are not legally enforceable but on the basis of voluntary adoption, a culture which at best is under-developed in the Muslim countries in general. In other words, at these summits countries with differing Islamic financial infrastructures are discussing issues which have not even been implemented in their own jurisdictions. There was also disappointment that there was hardly any movement on such pressing challenges faces the global Islamic financial industry such as an urgent need for a global Islamic liquidity mechanism or inter-bank system for both short-term liquidity placements and for facilitating the needs of banks to invest their central bank reserves and other capital placements in a Shariah-compliant basis. Similarly, the vexed question of leakage and use of proceeds and of standardization is nowhere near resolving. On the positive side, there is a growing realism as to the challenges facing the global Islamic financial sector and the steps that need to be taken to ensure its soundness and resilience to external and internal shocks. New entrants to the market such Korea are impressed about the value proposition of Islamic finance. “We truly believe that Islamic finance is a good innovation in the global financial market. We are committed to facilitating it in Korea. The global financial crisis has shown that financial services cannot be divorced from the real economy,” explained Kim Jong Chang, governor of the Financial Supervisory Service of Korea.   The current chairman of the IFSB governing council, Mohammad Al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA), would certainly be in favor of leveraging such sentiments and opportunities. But Al-Jasser also tempered expectations warning that 2009 will see a slower growth rate in the Islamic finance sector, which had been growing between an estimated 20 percent to 40 percent over the last few years. “There are signs that 2009 will be a year of slower growth but we should stay in positive territory,” he stressed. Al-Jasser rightly pointed out that Islamic finance is now moving to a new level and is now competing on its own merits in terms of attractive and competitive products and services in the global marketplace. But he warned against self-regulation and that the Islamic financial services industry similarly needed to meet global standards and best practices for risk management, capital adequacy, corporate governance and transparency. SAMA of course has been vindicated in its conservative approach in banking regulation and reigning in any adventures by Saudi banks in the subprime market for instance, with the result that Saudi financial institutions have virtually no exposure to the credit crunch and the subprime crisis. IDB president, Ahmed Mohamed Ali, best outlined the concerns facing the Islamic finance industry. The industry is too concentrated on commercial banking and needs to diversify and provide a wider range of products and services. He called on investment banks to offer products that “have a positive impact on economic growth without compromising resilience and stability.” The sector, he added, needs more venture capital and SME financing. He also called for a systemic revision of the Islamic regulatory and accounting standards.  Zeti Akhtar Aziz, governor of Bank Negara Malaysia, chairing the closing session of the summit, stressed that Islamic finance needs to be further regulated as it is now becoming an increasingly important component in the international financial system. Regulation of banks is a major issue in the current crisis. In this context it was critical regulations that would ensure the soundness and stability of the Islamic finance system be developed. Mush work needs to be done in building a robust future for Islamic finance. For IFSB secretary-general this means developing the liquidity, legal and database infrastructure of the industry. “It is important to ensure that our policy actions must always be responsive and attuned to the continuously changing landscape in financial regulation and supervision.” Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=3337&Cat=0

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

The IFSB membership reflects the growing interest among the Islamic financial services industry's stakeholders in the work of the IFSB

• The IFSB admits 10 new organisations to its membership (two full members, eight observer members) and upgrades an associate member to full.
• The IFSB members now total 185 organisations comprising 43 regulatory and supervisory authorities, six international inter-governmental organisations and 136 market players and professional firms operating in 35 jurisdictions.

Kuala Lumpur, April 21, 2009 - The Islamic Financial Services Board (IFSB) membership continues to expand, with the admission of 10 new organisations. In its' 14th meeting held recently in Riyadh, Saudi Arabia, the Council of the IFSB has resolved to admit 2 new regulatory and supervisory authorities as full members, and 8 new financial institutions as observer members. This brings the IFSB membership to 185 members operating in 35 jurisdictions.  

The 19-member Council was chaired by H.E. Dr. Muhammad Sulaiman Al-Jasser, Governor of the Saudi Arabian Monetary Agency. It was attended by the President of the Islamic Development Bank, nine central bank governors and six governors' representatives.

Dubai Financial Services Authority was upgraded from an Associate to a Full Member, while the newly admitted members are:

Full Members: 
1.        Central Bank of Nigeria 
2.        Qatar Financial Markets Authority

Observer Members: 
1.        Deloitte Corporate Advisory Services, Malaysia 
2.        Etiqa Takaful Berhad, Malaysia 
3.        Maybank Islamic Berhad, Malaysia 
4.        Barwa Bank, Qatar 
5.        Woori Investment and Securities, South Korea 
6.        Islamic Insurance Company, Sudan 
7.        Al Hilal Takaful Company, United Arab Emirates 
8.        Moody's Middle East Limited, United Arab Emirates

Given the growing interest of the industry's stakeholders in the work of the IFSB, Secretary-General, Professor Rifaat Ahmed Abdel Karim expects a more diverse composition of the IFSB membership in the years to come. Rifaat said, "The number of regulatory and supervisory authorities in the IFSB membership tends to reflect a growing interest among them in the work of the IFSB which aims to enhance the soundness and stability of the Islamic financial services industry. Meanwhile, the admission of international rating and accounting firms in the IFSB suggests an awareness of these firms' potential role in supporting the development of the Islamic financial services industry as well as their appreciation of the benefits of being members of the IFSB." He added that with the new admissions, the 185 members of the IFSB comprise 43 regulatory and supervisory authorities, six international inter-governmental organisations and 136 market players and professional firms from among the banking, Takâful and Islamic capital market sectors of the financial industry operating in 35 jurisdictions.

The diverse membership in the IFSB form a useful pool of resources from which the IFSB draws expertise in developing its standards and guiding principles.

The full list of the 185 IFSB members can be seen on www.ifsb.org. Their roles and responsibilities (by category) are detailed in the IFSB Articles of Agreement which is downloadable from the website.