The IFSB issues two new Exposure Drafts for Public Consultation

31 October 2014, Kuala Lumpur – The Islamic Financial Services Board (IFSB) issues two new Exposure Drafts (ED) for public consultation starting 31 October 2014 to 5 January 2015, and invites comments from regulatory and supervisory authorities, international organisations, market players, academics and other interested parties. The EDs are as follows:

• ED-17: Standard on Core Principles for Islamic Finance Regulation (Banking Segment)
• ED of GN-6: Guidance Note on Quantitative Measures for Liquidity Risk Management in Institutions Offering Islamic Financial Services [Excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes].

Details on the two Exposure Drafts are as follows:

ED-17: Standard on Core Principles for Islamic Finance Regulation (Banking Segment)

The main objective of the Core Principles for Islamic Finance Regulation (CPIFR) is to provide a set of Core Principles – along with associated assessment methodology – for the regulation and supervision of the Islamic financial services industry (IFSI), taking into consideration the specificities of the institutions offering Islamic financial services (IIFS) in the banking segment, the lessons learned from the financial crisis, and complementing the existing international standards, principally the Core Principles for Effective Banking Supervision issued by Basel Committee on Banking Supervision. In particular, the objectives of the CPIFR include:

1. providing a minimum international standard for sound regulatory and supervisory practices for the effective supervision of the IIFS;
2. protecting consumers and other stakeholders by ensuring that the claim to Sharī`ah compliance made explicitly or implicitly by any IIFS is soundly based;
3. safeguarding systemic stability by preserving the linkages between the financial sector and the real economic sector which underlie Islamic finance; and
4. ensuring that IIFS act in accordance with their fiduciary responsibilities in all their operations, especially in regard to investment account holders.

It is envisaged that these Core Principles will be used by jurisdictions as a benchmark for assessing the quality of their regulatory and supervisory systems and for identifying future work to achieve a baseline level of sound regulations and practices for Islamic finance. The CPIFR will promote further integration of Islamic finance with the international architecture for financial stability, while simultaneously providing incentives for improving the prudential framework across jurisdictions so that it is harmonised and consistently implemented across the globe.

ED of GN-6: Guidance Note on Quantitative Measures for Liquidity Risk Management in IIFS

The ED of GN-6 aims to complement global liquidity standards (such as LCR and NSFR) and other developments on liquidity risk management for the Islamic financial services industry (IFSI). It will help the regulatory and supervisory authorities to provide a level-playing field to the IIFS in the application of liquidity standards vis-a-vis their conventional counterparts, and thus will promote the sound management of liquidity risk in IIFS. The objectives of this Guidance Note are as follows:

1. to complement other prudential standards issued by the IFSB, as well as to support the harmonised application of the international regulatory regime in the area of liquidity risk management, by providing guidance on the application of global liquidity standards for the IIFS;
2. to provide guidance to supervisory authorities on the application of the LCR in their jurisdictions and on their role in assessing the discretionary items specified in this GN, including application of the alternative liquidity approaches (ALA);
3. to delineate the disclosure requirements required alongside the application of liquidity standards; and
4. to present the template of the net stable funding ratio (NSFR), which needs to be considered in the planning and monitoring of liquidity risk.

The public consultation period, which begins 31 October 2014, is part of the due process for the preparation of the IFSB Standards and Guidance Notes. The IFSB will also conduct two Public Hearings during the public consultation period. Accordingly, the IFSB Secretariat invites all interested parties, including the IFSB members, to send their comments on the EDs to the Secretariat at: [email protected] latest by 5 January 2015.

The two EDs are available for download from the IFSB website at www.ifsb.org.