Wellington, June 13, 2006 – The Islamic Financial Services Board (IFSB), in its efforts to integrate Islamic finance into the global financial system introduces new or adapts existing international standards which are consistent with Shari’ah rules and principles. “We do not attempt to reinvent the wheel for Islamic finance as a niche system, rather, we complement the work of the Basel Committee for Banking Supervision by catering for the specificities of Islamic banks.” Professor Rifaat Abdel Karim, Secretary General of the IFSB said in his Keynote Address at the Seminar on Islam and the Global Economy: Malaysian and NZ Perspectives held in Wellington today.
Rifaat names two fundamental challenges facing the Islamic financial services industry, namely that the industry operates (1) as an integral part of the international financial system; and (2) on a sound and stable basis. The common aim of the IFSB, and its 88 members from 16 countries, is to address these challenges.
An indication on the absence of international standards designed to address the specificities of institutions offering Islamic financial services (IIFS) is evident in the vast spectrum of control seen in the supervision and regulation of the industry in the various countries and jurisdictions, varying from specific guidelines for Islamic banks on the one end, to the application of the same prudential policies governing conventional banks on the other. Such differences in approaches have raised concerns that compliance with multiple supervisory and regulatory regimes would impose additional costs on IIFS, impede the industry’s growth and consequently act as a hindrance towards full integration into the mainstream global financial system.
The IFSB has recently issued its first two standards, one on capital adequacy and another on risk management, and recommended their implementation among its member countries effective 2007. An exposure draft has been issued on corporate governance, while other standards in the pipeline include supervisory review process, transparency and market discipline, special issues in capital adequacy and governance of investment funds.
In elaborating the specificities of IIFS, the IFSB Capital Adequacy standard complements Pillar I, Supervisory Review complements Pillar II and Transparency and Market Discipline complements Pillar III of Basel II, respectively. Meanwhile, the Corporate Governance standard is based on the Organisation for Economic Cooperation and Development (OECD) Principles and Basel Paper on Corporate Governance. Others such as the Risk Management standard may be less specific but are nonetheless crucial areas of concern towards ensuring the soundness and stability of the Islamic financial services industry.
All the IFSB standards and exposure drafts may be downloaded from www.ifsb.org
The one-day Seminar is organised by the Chair of Malay Studies and School of Marketing and International Business, Victoria University of Wellington, New Zealand.
