Corporate Governance in Islamic Financial Services: The Challenge to Industry Supervisors and Practitioners

Doha, Tuesday May 25, 2005 – At the Islamic Financial Services Board (IFSB) Summit in Doha, attended by 12 governors of central banks/monetary agencies and other leading figures in the Islamic financial services industry, speakers concurred in acknowledging the need to strengthen corporate governance in the industry.

Key themes that were emphasised by speakers highlighted the central importance of robust corporate governance (CG) in establishing the reputation of Institutions offering Islamic Financial Services (IIFS), both individually and for the industry sector as it experiences rapid growth and continuous product innovation. These themes included the following:

1. The role of ethics and a clear sense of institutional mission in CG
2. The key role of directors, especially non-executives, and of Board committees, in CG; and the essential role of supervisors in establishing and enforcing “fit and proper” criteria for directors so that Boards can exercise “self-monitoring” thus complementing and reducing the need for supervisory inspection
3. The importance of transparency and the role of the supervisor/regulator in establishing a “virtuous circle” whereby disclosure requirements serve to foster a culture of openness, enhancing the information environment, providing material for information intermediaries, and thus promoting market discipline
4. The status of Investment Account Holders as investors and residual claimants, and their right to greater transparency as well as to some representation in governance.

Professor Rifaat Ahmed Abdel Karim, Secretary-General of the IFSB, commented: IFSB’s forthcoming Exposure Drafts (EDs) on Corporate Governance and on Transparency and Market Discipline will address these issues, and their exposure periods will provide further opportunities for wide consultation and consensus building with regard to an internationally acceptable set of guidelines for implementation by national supervisors/regulators. I’m very pleased that this 2nd IFSB Summit succeeded in drawing the attention of our distinguished audience not only to the central importance of corporate governance for IIFS but also to the work that needs to be done to promote good corporate governance in the industry. IFSB’s mission involves taking a leading role in this work, and this we are doing. I wish to extend my heartfelt appreciation to our Summit hosts, Qatar Central Bank and HE Governor Al-Attiyah, for the magnificent hospitality and support provided which were crucial in making this event a success”.

*Note to Editor

The IFSB was officially inaugurated on 3 November 2002. It serves as an international standard setting body of regulatory and supervisory agencies with vested interest to ensure the soundness and stability of the Islamic financial services industry, broadly defined to include banking, capital market and insurance. In advancing its mission, the IFSB will promote the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Sharī`ah rules and principles, and recommend them for adoption.