The IFSB issues two new Exposure Drafts for Public Consultation

1 November 2012, Kuala Lumpur – The Islamic Financial Services Board (IFSB) issues two new Exposure Drafts (EDs) for a five-month Public Consultation period starting 1 November 2012 to 31 March 2013, and invites comments from regulatory and supervisory authorities, international organisations, market players, academics and other interested parties. The EDs are as follows:

1. ED-14: Standard on Risk Management for Takāful (Islamic Insurance) Undertakings; and
2. ED-15: Standard on Revised Capital Adequacy for Institutions offering Islamic Financial Services (other than Takāful Institutions and Islamic Collective Investment Schemes).

In line with the IFSB due process on the development of Standards and Guiding Principles, the IFSB will be organising Public Hearings for these two EDs as follows:

1. Public Hearing 1: 18 November 2012 in Dubai, UAE
2. Public Hearing 2: 22 January 2013 in Kuala Lumpur, Malaysia

The contact person for the Hearing is Mrs. Ismawaty Ismail (Email: [email protected], Tel: + 603 9195 1422, Fax: +603 9195 1405).

Details on the two Exposure Drafts are as follows:

ED-14: Standard on Risk Management for Takāful Undertakings

This ED aims to provide a minimum standard for the development of a risk management framework for Takāful Undertakings. This is of importance as current global market conditions necessitate the relevant regulatory and supervisory authorities to continue strengthening the industry.

The ED identifies certain key features which a Takāful Operator should consider when observing Sharī`ah rules and principles in its activities. The document calls for appropriate attention be given to the risks arising from the segregation of funds between the Participants’ Risk Fund (PRF), Participants’ Investment Fund (PIF) and the Shareholders’ Fund (SHF).

ED-15: Standard on Revised Capital Adequacy

This ED is a revision of the previous IFSB Standard on Capital Adequacy and provides additional guidance on capital adequacy requirements which correspond to the global regulatory developments after the recent financial crisis, including Basel III. The ED aims to provide a comprehensive guidance to supervisory authorities and institutions offering Islamic financial services (IIFS) on the application of capital adequacy regulations and macroprudential tools. The main objectives of this document are:

1. To assist the IIFS and their supervisory authorities in the implementation of a capital adequacy framework that will ensure effective coverage of risk exposures of the IIFS and allocation of appropriate capital to cover these risks;
2. To provide guidance on the maintenance of high-quality regulatory capital components by IIFS, which comply with Sharī`ah rules and principles;
3. To address the capital adequacy requirements of various risk exposures related to Sharī`ah-compliant products and services offered by IIFS;
4. To provide guidance on the capital adequacy treatment of an IIFS’s involvement in Sukūk issuance and securitisation processes in various capacities including as originator, servicer and credit enhancer;
5. To adapt relevant international best practices as well as standards relating to capital adequacy for IIFS.

The softcopies of the two EDs and information on the Public Hearing are available on the IFSB website, www.ifsb.org.