The IFSB issues three Exposure Drafts for public consultation
Date posted: 5 January 2009
Kuala Lumpur, January 5, 2009 - The Technical Committee of the Islamic Financial Services Board (IFSB) has approved the issuance of the following three Exposure Drafts (ED) for public comment:
- Guiding Principles on Governance for Islamic Insurance (Takāful) Operations;
- Conduct of Business for Institutions offering Islamic Financial Services (IIFS); and
- Guiding Principles on Sharī`ah Governance System.
During the five-month consultation period, the IFSB will hold two workshops and a public hearing to encourage interaction with, and comments from, the public.
(1) Guiding Principles on Governance for Islamic Insurance (Takāful) Operations
The ED of the Guiding Principles on Governance for Islamic Insurance (Takāful) Operations aims to complement other international governance standards, while addressing the specificities of the governance of Islamic insurance (Takāful) operations. The ED has three parts:
- Part I recommends the adoption of good governance practices as prescribed by other international standards for insurance companies, while also addressing the specific needs of Takāful undertakings;
- Part II explains the appropriate governance structure and processes, including the relevant transparency and disclosure practices, that adequately address the needs and interests of all stakeholders, with particular reference to Takāful participants; and
- Part III relates to the general approach to sustaining a Takāful undertaking's solvency and promoting sound investment management of its assets.
(2) Conduct of Business for Institutions offering Islamic Financial Services
The ED on Guiding Principles on Conduct of Business for Institutions offering Islamic Financial Services aims to promote a climate of confidence and a supportive environment in the business of the Islamic financial services industry by upholding and strengthening the relevant moral, social and religious values in business practices. These principles are desired from institutions that offer Islamic financial services (IIFS) not only because of Sharī`ah obligations and requirements, but also because they serve to manage operational risks of the IIFS, particularly reputational risk. Apart from complementing the IFSB standards and guidelines, the document addresses the specificities of the IFSI. It thereby aims to "add value" to other existing internationally recognised frameworks that set out sound principles and best practices pertaining to the conduct of business of participants and institutions in the conventional banking, insurance and capital market industry segments.
(3) Guiding Principles on Sharī`ah Governance System
The ED of Guiding Principles on Sharī`ah Governance System aims to highlight to the supervisory authorities in particular, and the industry's other stakeholders in general, the components of a sound Sharī`ah governance system, especially with regard to the competence, independence, confidentiality and consistency of Sharī`ah boards. The ED has five parts:
- Part I explains the general approach to a Sharī`ah governance system, whereby various globally accepted ex-ante and ex-post governance processes are adapted in order to strengthen the Sharī`ah governance system. These processes include, among others, terms of reference for Sharī`ah boards, appropriate alignment of incentives, proper record-keeping, and adoption of a professional code of ethics.
- Part II addresses the issue of competence by proposing various measures and criteria to ensure a reasonable level of expertise and skill-sets for members of Sharī`ah boards. The proposed measures and criteria are intended to act as the basis for evaluating the performance of Sharī`ah boards and determining their professional development.
- Part III focuses on safeguarding the independence of Sharī`ah boards, particularly from the management of IIFS, by highlighting various issues arising from potential conflicts of interest and recommending approaches for managing them.
- Part IV highlights the importance of observing and preserving confidentiality by the organs of Sharī`ah governance.
- Part V emphasises a set of best practices that aim to maintain the appropriate level of professionalism among the members of the Sharī`ah board.
All three exposure drafts are downloadable from the IFSB website.
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