Prudential Regulation Development by
Islamic Financial Services Board (IFSB)
October 30, 2009
Zahid ur Rehman Khokher
Assistant Project Manager
Outline Of The Presentation
• This presentation aims to provide:
•
Overview of the current regulatory environment
of institutions offering Islamic financial services
(IIFS)
•
Overview on the IFSB
•
Process of Standards Development
Laws regulating IIFS
Regulatory Environment of Islamic Financial Services Industry… (1)
– Legal framework of IIFS
Specific
Laws
Same laws of
conventional
banks
Supervision
of IIFS
Some countries like Iran, Kuwait,
Malaysia, Sudan, Turkey, UAE and
Yemen have enacted specific laws to
regulate the establishment of IIFS.
In other countries, IIFS are established
by the same laws of conventional
banks.
In all the countries in which they
operate, IIFS are supervised by
their respective supervisory and
regulatory bodies.
Regulatory Environment of Islamic Financial Services Industry … (2)
– Prudential regulations of IIFS
Specific rules
In some countries, the regulation and
supervision of Islamic banks is carried out
by rules specifically developed for IIFS.
Same rules for
conventional banks
In other countries, IIFS are subject to the
same prudential rules that govern their
conventional counterparts.
Dual Approach
In many countries, regulators have issued
some specific prudential rules for IIFS
(licensing, reserve requirements, reporting
etc.) but in other matters same rules are
being applied as for conventional banks
Regulatory Environment Of Islamic Financial Services Industry … (3)
– Implications of the present framework
• The scenarios, described in earlier slides, have resulted in lack of
level playing field for IIFS and the industry as a whole.
• Furthermore, since the distinctive characteristics of Shari’ahcompliant financial transactions raise a number of issues related to
the risks borne by the institutions offering those services, failure to
adequately recognise and supervise these risks, could impose
systemic risk to the entire financial system and jeopardise the
stability and soundness of the industry.
• Hence, the need to develop uniform prudential and best practices
standards that are tailored to the specific characteristics of these
institutions is vital.
Establishment Of The IFSB
•
The IFSB was the culmination of an extensive two-year consultative
process initiated by a group of governors and senior officials of
central banks and monetary authorities of various countries,
together with the support from the Islamic Development Bank (IDB),
the International Monetary Fund (IMF), and the Accounting and
Auditing Organization for Islamic Financial Institutions (AAOIFI)
•
It was officially inaugurated on 3rd November 2002
•
Malaysia has been selected as its host country
•
It started operation in March 2003
•
Has been granted immunities and privileges that are accorded to
diplomatic missions and international organisations
What Is The IFSB?
•
The IFSB is an international standard-setting body
of the regulatory and supervisory agencies that have
vested interest in ensuring the soundness and
stability of the Islamic financial services (IFS)
industry, which is defined broadly to include:
– Banking
– capital market, and
– insurance.
What Does The IFSB Envisage?
•
The IFSB is envisaged to complement the prudential
framework set out by:
– Bank for International Settlements – Basel Committee on
Banking Supervision (BCBS)
– International Organization of Securities Commissions
(IOSCO)
– International Association of Insurance Supervisors (IAIS)
Objectives of IFSB
– Develop new standards or adopt existing standards & recommend its
implementation
– Provide guidance on effective supervision and regulation
– Establish cooperation with international standard-setting bodies &
member countries
– Enhance & coordinate initiatives to develop instruments and
procedures for efficient operation and risk management
– Encourage cooperation among member countries
– Facilitate capacity-building and development of human capital
– Undertake research and publish studies and surveys on, the Islamic
financial services industry
– Establish database of Islamic banks, financial institutions and
industry experts
– Miscellaneous objectives agreed by the General Assembly
Organisational structure
General Assembly
Council Members
Secretariat
The permanent
administrative body of the
IFSB. It is headed by a fulltime Secretary-General
appointed by the Council on
such terms and conditions
determined by the Council.
The Secretariat is based in
Kuala Lumpur, Malaysia.
The representative body of all the members
of the IFSB namely, Full Members, Associate
Members and Observer Members.
The senior executive and policy making body
of the IFSB. It shall consists of one
representative from each Full Members who
shall be the senior executive officer of that Full
Member or such other senior person nominated
to represent him from time to time.
Technical Committee
Working Group /
Task Force
The body responsible for advising
the Council on technical issues
within its terms of reference (as
determined by the Council). It shall
consists of up to 15 persons selected
by the Council and shall have a term
of office of three years.
 Working Group is a committee
established to be responsible for
drafting standards and/or guidelines.
 Task Force is a committee established
to be responsible for undertaking adhoc tasks.
10
Membership categories
Full Member
(voting rights)
Available to:
• the supervisory authority responsible for the supervision of the
banking, securities and/or insurance/takaful industries of each
sovereign country
• inter-governmental international organisations that have an explicit
mandate for promoting Islamic finance and markets
Associate
Member
(no voting rights)
Available to:
• any central bank, monetary authority or financial supervisory or
regulatory organisation
• international organisation
which does not qualify for Full Members status or which does not
seek to become a Full Member
Observer Member
(no voting rights)
Available to any:
a) national, regional or international professional or industry
association;
b) institution that offers Islamic financial services; or
c) firm or organisation that provides professional services, including
accounting, legal, rating, research or training services to any
above institution
Full Membership
•
Qualifies for the membership of the Council;
•
Right to attend, participate and vote at all meetings of the General
Assembly;
•
Formulates and approves the policies and strategies of the IFSB;
•
Adopts and approves for issuance prudential and supervisory
standards;
•
Right to appoint the Technical Committee, and the Secretary-General;
•
Admits new members to the IFSB.
Associate Membership
•
Right to attend and participate in all meetings of the General Assembly
•
Priority list to participate and speak in seminars, conferences, workshops
and meeting organised by the IFSB, and, where applicable, at a reduced
fee
•
Preference to be selected to join the working groups that are formed by the
IFSB to prepare prudential and supervisory standards
•
First-hand disclosure of information from the Secretariat of the IFSB
•
Prestige of being associated with an international Islamic standard-setting
organisation.
Observer Membership
•
Right to attend all meetings of the General Assembly
•
Priority list to participate and speak in seminars, conferences, workshops
and meeting organised by the IFSB, and, where applicable, at a reduced fee
•
First-hand disclosure of information from the Secretariat of the IFSB
•
Prestige of being associated with an international Islamic standard-setting
organisation.
Membership of IFSB
193 Members From 37 Countries
By membership type
By organisational demarcation
Full Member
25
Regulatory /
supervisory authorities
20
Inter-governmental
organisations
Associate Member
Observer Member
Membership as at October 2009
147
193
Financial institutions
and professional firms
46
6
141
193
Regulatory and Supervisory Authorities
1. Bangladesh Bank
2. Bank Indonesia
3. Bank Negara Malaysia
4. Bank of Mauritius
5. Banque Centrale De Djibouti
6. Capital Market Authority of Saudi Arabia
7. Central Bank of Bahrain
8. Central Bank of Egypt
9. Central Bank of Jordan
10. Central Bank of Kuwait
11. Central Bank of Nigeria
12. Central Bank of Sudan
13. Central Bank of Syria
14. Central Bank of the Islamic Republic of
Iran
15. Central Bank of the United Arab Emirates
16. Dubai Financial Services Authority
17. Maldives Monetary Authority
18. Ministry of Finance, Brunei
19. Monetary Authority of Singapore
20. Qatar Central Bank
21. Qatar Financial Markets Authority
22. Saudi Arabian Monetary Agency
23. Securities Commission of Malaysia
24. State Bank of Pakistan
25. Bangko Sentral ng Pilipinas
26. Banque du Liban Lebanon
27. Bursa Malaysia Berhad
28. Capital Market Development Authority Maldives
29. Emirates Securities and Commodities Authority
30. Financial Services Commission Mauritius
31. Hong Kong Monetary Authority
32. Khartoum Stock Exchange Sudan
33. Labuan Offshore Financial Services Authority
Malaysia
34. Malaysia Deposit Insurance Corporation
35. Palestine Monetary Authority
36. People‘s Bank of China
37. Qatar Financial Centre Regulatory Authority
38. Securities and Exchange Commission of Pakistan
39. The Insurance Supervisory Authority Sudan
40. Da Afghanistan Bank
41. Financial Services Commission & Financial
Supervisory Service Korea
42. Insurance Commission of Jordan
43. Japan Securities and Dealers Association
44. Ministry of Economy and Finances Senegal
45. Securities and Futures Commission Hong Kong
Inter-Governmental organisations
– 6 international inter-governmental agencies:
•
•
•
•
•
Islamic Development Bank (IDB)
International Monetary Fund (IMF)
The World Bank (WB)
Bank for International Settlements (BIS)
Asian Development Bank (ADB)
• Islamic Corporation for the Development of Private Sector
(Subsidiary of IDB)
Implications of the Establishment Of The IFSB
•
Supervisors and regulators are now strongly committed to embark upon
collective and systematic efforts to develop supervisory and prudential
infrastructure for this industry
•
Support the transfiguration of the industry from one that is regulated on
an ad hoc basis to an industry that is based on a framework which caters
for its specificities, thereby enabling it to earn the respect of international
organisations that are mandated to enhance the soundness and stability of
the global financial system
•
Concerned regulators will be able to adopt an international approach to
regulation and supervision thereby enabling the industry to be part of
today’s global financial world
•
Ease the fears and misunderstanding of this industry amongst some
regulators
IFSB Standards and Publications
IFSB
Banking
Risk
Management
Capital
Adequacy
Corporate
Governance
Recognition
of Rating by
ECAI
Capital
Markets
Takaful
Transparency
&
Market
Discipline
Supervisory
Review
Process
Governance
of Takaful
Operations
Issues in
Regulation of
Takaful
Technical
Note Islamic
Money
Markets
Governance
of Collective
Investment
Funds
Market
Conduct
Shariah
Governance
Published
Special
Issues in
Capital
Adequacy
Exposure Draft Level
IFSB Published Standards
•
IFSB-1: Guiding Principles of Risk Management for IIFS (December 2005)
•
IFSB-2: Capital Adequacy Standard for IIFS (December 2005)
•
IFSB-3: Guiding Principles on Corporate Governance for IIFS (December 2006)
•
IFSB-4: Disclosures to Promote Transparency and Market Discipline for IIFS
(December 2007)
•
IFSB-5: Guidance on Key Elements in the Supervisory Review Process of IIFS
(December 2007)
•
IFSB-6: Guiding Principles on Governance for Islamic Collective Investment
Schemes (January 2009)
•
IFSB-7: Capital Adequacy Requirements for Sukuk, Securitisations and Real
Estate investment (January 2009)
•
GN-1: Guidance Note In Connection with the Capital Adequacy Standard:
Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on
Shari`ah-Compliant Financial Instruments (March 2008)
Exposure Drafts
• ED8: Guiding Principles on Governance for Islamic Insurance
(Takâful) Operations (December 2008)
• ED9: Conduct of Business for IIFS (December 2008)
• ED10: Guiding Principles on Sharî`ah Governance System
(December 2008)
Other Publications
•
TN-1: Technical Note on Issues in Strengthening Liquidity Management of IIFS: The
Development of Islamic Money Markets (March 2008)
•
Compilation Guide on Prudential and Structural Islamic Finance Indicators:
Guidance on the Compilation and Dissemination of Prudential and Structural Islamic
Finance Indicators for Banking and Near-Banking institutions offering Islamic financial
services (November 2007)
•
IFSB-IDB: Islamic Financial Services Industry Development: Ten-Year Framework
and Strategies (May 2007)
•
Issues in Regulation and Supervision of Takaful (Islamic Insurance) by IFSB and
International Association of Insurance Supervisors (August 2006 )
Due Process for Development of Standards
Working
Group (WG)
Issuance of
prudential
Standards
Preliminary
Exposure
Draft (ED)
Technical
Committee
(TC)
Sharī`ah
Meeting
Final
Approval
by
Council
Approval
by TC
Sharī`ah
Meeting
TC
approval
on ED
Amendments
by Working
Group
Issuance of
ED by TC
Public Hearing
& Workshops
23
Awareness Programmes and FIS Workshops
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.
Summit
This mainly takes the form of
international conferences, seminars,
public lectures, dialogue sessions,
forums and meetings staged in many
countries.
Interactive Session
Int. Conferences
Seminar
Forum
Public Lecture
Website
www.ifsb.org is the
The FIS Workshop initiative was
initiated in November 2007.
To date, the IFSB has held
workshops in 15 member countries
main communication tool
for the IFSB to
disseminate information
to members and
stakeholders.
24
Thank you for your attention
Zahid ur Rehman Khokher
Assistant Project Manager
Islamic Financial Services Board
Telephone:
Fax:
Email:
Webpage:
Address:
+603 2698 4248 Ext. 139
+603 2698 4280
zahid@ifsb.org
www.ifsb.org
Bank Negara Malaysia Building, 3rd
Floor, Block A , Jalan Dato’ Onn, 50480
Kuala Lumpur, Malaysia