The IFSB issues two Exposure Drafts for public consultation

Kuala Lumpur, December 14, 2007 – The Islamic Financial Services Board (IFSB) today issued two new exposure drafts (ED) for a five-month public consultation period ending 10 May 2008. This is part of the IFSB’s due process for the preparation of Standards and Guidelines, and it welcomes comments on the two EDs.

The two EDs are:

1. Capital Adequacy Requirements for Sukuk Securitisations and Real Estate Investment
2. Guiding Principles on Governance for Islamic Collective Investment Schemes

The two documents complement the existing IFSB Standards, namely the Capital Adequacy Standard for Institutions Offering only Islamic Financial Services (IFSB-1), and the Guiding Principles on Corporate Governance for Institutions Offering only Islamic Financial Services (IFSB-3), which were issued in 2005 and 2006, respectively.

The ED of Capital Adequacy Requirements for Suk«k Securitisations and Real Estate Investment deals with aspects of regulatory capital requirements for institutions offering Islamic financial services (IIFS) in respect of Suk«k that are not covered in IFSB-1. These include:

1. Capital requirements for IIFS that are holders of Sukuk; and
2. Capital treatment of the exposures of an IIFS where it is, or acts in a capacity such that it is considered to be, the originator of a Suk«k issue, or as an issuer or servicer of a Sukuk issuance.

In respect to real estate investment, the ED deals primarily with:

1. Capital requirements for an IIFS that invests its own funds in real estate investment activities; and
2. Capital treatment of exposures in real estate investment activities where an IIFS either commingles the funds of investment account holders with those of shareholders (and other non-profit-sharing investment account holders) or otherwise invests the funds of unrestricted investment account holders.

The ED of Guiding Principles on Governance for Islamic Collective Investment Schemes aims to complement IFSB-3 and other internationally recognized governance standards, by reinforcing international best practices while addressing the specificities in the governance of Islamic Collective Investment Schemes (ICIS).

The contents of the ED are divided into four parts:

1. Part I relates to the approach to general governance, whereby the adoption of good governance practices as prescribed in other internationally recognised governance standards is reinforced;
2. Part II addresses transparency and disclosure and aims to improve the information environment for ICIS investors as well as to build on, amongst other things, the disclosure requirements recommended under the IFSB Disclosures to Promote Transparency and Market Discipline for Institutions Offering Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds);
3. Part III focuses on compliance with Shari’ah rules and principles and addresses various specificities of ICIS that include (a) the process of portfolio screening by ICIS Operators; (b) the role of Shari’ah scholars in monitoring consistent compliance with the Shari’ah; and (c) the process of purification of tainted income; and
4. Part IV examines additional protection for ICIS investors and highlights the issues of adequacy of representation for investors in the organs of governance of ICIS as well as some prevalent practices (identified from an IFSB survey) that require appropriate oversight.

English version:

1. Capital Adequacy Requirements for Sukûk Securitisations and Real Estate Investment
2. Guiding Principles on Governance for Islamic Collective Investment Schemes