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The IFSB Publishes Frequently Asked Questions (FAQs) for Its Four Standards on Capital Adequacy, Liquidity Risk Management, Sharīʻah Governance and Solvency Requirements in Takāful

Date posted: 1 November 2018

1 November 2018, Kuala Lumpur – The IFSB, an international standard-setting organisation for Islamic financial services industry, in its mandate to promote understanding and adoption of its standards, regularly conducts capacity building workshops, provides technical assistance and policy advice, and offers comprehensive e-learning programmes. In addition to its efforts to strengthen the implementation of standards, the IFSB today published answers to selected frequently asked questions (FAQs) on four IFSB standards and guidelines, namely, Guiding Principles on Sharīʻah Governance Systems for Institutions Offering Islamic Financial Services (IIFS) (IFSB-10), Standard on Solvency Requirements for Takāful Undertakings (IFSB-11), Revised Capital Adequacy Standard for IIFS (IFSB-15), and Guidance Note on Quantitative Measures for Liquidity Risk Management in IIFS (GN-6) which were published in December 2009, December 2010, December 2013, and April 2015, respectively.

On this issuance, the Secretary-General of the IFSB, Dr. Bello Lawal Danbatta stated, “With the issuance of the first set of FAQs on selected IFSB standards, the IFSB has taken an important additional step in supporting regulatory and supervisory authorities and Islamic finance industry market players by providing appropriate technical elaboration and guidance.” He further stated, “The IFSB Secretariat plans to publish FAQs for other IFSB standards in future and will update the existing ones from time to time with a view to enhance the understanding and support wider implementation of IFSB standards for promoting its global implementation.”

IFSB-10 provides guidance on the principles of Sharīʻah governance systems. Therefore, the FAQs for IFSB-10 addresses key questions on how the Sharīʿah governance systems can complement the existing governance, control, and compliance functions within an IIFS. The responses also clarify suitable Sharīʻah governance structure to be adopted by IIFS in various jurisdictions.

The FAQs on solvency requirements for takāful undertakings (IFSB-11) highlight key questions on overview of the standard and valuation of technical provisions. The FAQs also attempt to address the distinguishing factors between takāful undertakings and conventional insurance for solvency requirements.

The FAQ responses for IFSB-15 seek to clarify the qualifying criteria to be included in capital components of an IIFS. The FAQs also explain the definitions for different kinds of regulatory adjustments, for example, the treatments of pension funds, cash-flow hedge reserve, and zakāh obligations, among others. Examples of computation of risk-weighted assets for IFSB “standard formula” as well as “supervisor discretion formula” are illustrated in the FAQ answers.

The main objective of the GN-6 is to provide guidance of maintaining liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) by the IIFS. Therefore, the FAQs on this Guidance Note elaborate related issues on the eligibility criteriea and other specific details on the eligibility criteria of Sharīʻah-compliant high-quality liquid assets as well as calculation methodologies. The FAQ responses also clarify the treatment of profit-sharing investment account (PSIA) for LCR purposes in order to determine appropriate run-off factors under different scenarios.

The IFSB welcomes enquires, suggestions and comments for improvement of the FAQs, providing more clarification of the standards. Comments and suggestions may be sent to: ifsb_sec@ifsb.org.

These FAQs are available on the IFSB website under the ‘Standards Development’ section for download: www.ifsb.org.

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