IFSB organises second Public Hearing on Exposure Drafts 12 and 13

IFSB organises second Public Hearing on Exposure Drafts 12 and 13

Kuala Lumpur, 6 December 2011 – The Islamic Financial Services Board (IFSB) is inviting the Islamic financial community and interested parties to attend its 2nd Public Hearing for the IFSB Exposure Drafts (ED) 12 and 13. The Public Hearing will be held on 14 December 2011, in Manama, Kingdom of Bahrain. The Central Bank of Bahrain is hosting the Hearing.

The details of the Public Hearing are as follows:
Date     : Wednesday, 14 December 2011
Time    : 9:00am to 11:30am
Venue  : Ritz-Carlton Hotel, Manama, Kingdom of Bahrain

ED-12 is on Guiding Principles on Liquidity Risk Management for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takâful) Institutions and Islamic Collective Investment Schemes – IIFS) while ED-13 is on Guiding Principles on Stress Testing for IIFS. The EDs, which are available for download from the IFSB website, were issued on 12 October 2011, and public consultation will end 12 January 2012.

Public Hearings for the EDs, the first was held in Kuala Lumpur on 16 November 2011, are held within the Public Consultation period of the documents, and is part of the IFSB due process for the development of standards and guiding principles as outlined in the IFSB Guidelines and Procedures for the Preparation of Standards/Guidelines.

Details on the two EDs are as follows:

ED – 12: Guiding Principles on Liquidity Risk Management for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes)
The proposed document on liquidity risk management endeavours to delineate a set of guiding principles for the robust management of liquidity risk by institutions offering Islamic financial services (IIFS) and its vigorous supervision and monitoring by supervisory authorities, taking into consideration the specificities of IIFS and complementing relevant existing and emerging international standards and best practices. In keeping with the objectives of the IFSB, the twenty-two (22) Guiding Principles aim to help develop a prudent, efficient and resilient Islamic financial services industry, thus enhancing the stability of the overall financial systems in which IIFS operate.

In addition to providing necessary conditions for effective liquidity risk management in the Islamic financial services industry, these Guiding Principles outline, among others, the:

1. salient characteristics of the liquidity risk management process to be undertaken by IIFS including identification, measurement, monitoring, control, reporting and mitigation;
2. role of various components in the governance structure as well as that of different functional and business units in ensuring robust and effective liquidity risk management by IIFS;
3. liquidity risk implications of various Islamic financing contracts during different stages of operations;
4. important ingredients of supervisory framework to monitor the liquidity positions and liquidity risk management framework of IIFS that include, inter alia, initiatives for the development of a robust national liquidity infrastructure, supervisors’ contingency planning for IIFS and supervisors’ role as provider of Sharī`ah -compliant liquidity support to IIFS.

ED – 13: Guiding Principles on Stress Testing for Institutions offering Islamic Financial Services (other than Islamic Insurance (Takāful) Institutions and Islamic Collective Schemes)
The proposed document on stress testing aims to provide a set of guiding principles intended to complement the existing international stress testing framework taking into consideration the specificities of IIFS as well as the lessons learned from the financial crisis so as to contribute to the soundness and stability of the IIFS particularly, and Islamic financial services industry as a whole.

Twenty-two (22) Guiding Principles provide a framework for IIFS with the aim to guide them in assessing and capturing vulnerabilities under various stress-testing scenarios including extreme but plausible shocks, in order to achieve the following, inter alia:

1. identify how different portfolios respond to changes in key economic variables (for example benchmark rates, foreign exchange rates and credit quality);
2. assess the quality of assets to identify existing and potential loss exposures;
3. evaluate potential threats to the IIFS’s ability to meet its financial obligations at any time arising from either funding or market liquidity exposures;
4. estimate the impact of stress events on baseline profit (as profits normally act as the first line of defence before dipping into capital);
5. analyse the IIFS’s ability to meet its capital requirements at all times throughout a reasonably severe economic recession.

More information on the Public Hearing is available on the IFSB website www.ifsb.org. The contact person for the Hearing is Mrs. Ismawaty Ismail (Email: [email protected], Tel: + 603 9195 1422, Fax: +603 9195 1405).