22 October 2015, Kuala Lumpur – The Islamic Financial Services Board (IFSB) is pleased to announce the issuance of a Working Paper on Comparative Study on The Implementation of Selected IFSB Standards (WP-04) today, as part of its Working Paper series.
This study, which is funded by the Asian Development Bank (ADB), aims to identify the factors that contribute to a better understanding of the challenges faced in the implementation the IFSB Standards. The Working Paper draws on the IFSB’s annual Standards Implementation Survey, other publications, as well as on discussions and feedback from banking-sector regulatory and supervisory authorities (RSAs) in countries with different levels of standards implementation. It focuses, in particular, on four IFSB standards (IFSB-2 (Capital Adequacy Standard), IFSB-4 (Disclosures to Promote Transparency and Market Discipline), IFSB-5 (Guidance on Key Elements in the Supervisory Review Process) and IFSB-10 (Guiding Principles on Sharī`ah Governance Systems)) that have been in existence for a sufficient period to offer reasonable experience of implementation.
The Working Paper has made a reference to the studies of conventional standard-setters which indicate a variety of factors that hamper the implementation of their standards in member jurisdictions, especially in emerging markets and developing economies. These problems also broadly apply to Islamic financial services industry. Some of these concerns include: i) inadequate resources and capacity, requiring a phased approach to implementation; ii) different stages of development of financial markets; iii) competing regulatory priorities, such as strengthening legal frameworks to undertake corrective and remedial measures, enhancing infrastructural elements and adopting consolidated supervision. In resolving these issues, various approaches can be adopted such as ‘deconstruction’ of various elements in order to help the jurisdictions prioritise areas that are most relevant; integrate regulatory reform with enhancements to the supervisory framework; and engage with the industry to ensure effective implementation.
The Working Paper observes that the implementation of standards often needs to be accompanied by institutional development. Similarly, other factors having significant impact on standards implementation include the structure and drafting of the standards themselves, the institutional capacity of the regulatory and supervisory authorities as well as the general institutional climate in the jurisdiction.
There was a general satisfaction noted with the IFSB standards itself, and the IFSB standards development process. However, the IFSB Survey noted that a significant minority of regulatory and supervisory authorities find greater difficulty in implementing the IFSB standards than do their conventional counterparts. The Working Paper indicated that the Islamic finance industry would want a) to see standards on certain areas/issues to be produced more quickly, to mirror more closely the coverage of conventional counterparts, and b) more technical IFSB standards to be more “implementation-ready” with minimal further development or exercise of discretion.
The Working Paper also highlighted the strong demand for greater support for implementation activities. This support may involve, for example, considering whether certain standards can be deconstructed so that jurisdictions can implement them in phases as appropriate to their own needs, or in areas other than capital standards, the merits of an approach based on the Core Principles for Islamic Finance Regulation that is capable of being broken into manageable but worthwhile elements.
The Working Paper notes that further to the role of the IFSB, it is important for other parties – multilaterals, regulatory and supervisory authorities, training and capacity building providers and industry players – to support the implementation efforts. This support can be tailored to different levels of knowledge and different organisational/jurisdictional requirements. Similarly, cooperation between the IFSB and other multilateral agencies will help the regulatory authorities to strengthen their institutional capacity in implementing the IFSB standards.
The publication will be available for download from the IFSB www.ifsb.org from 22 October 2015.
