The IFSB Council Adopts Two New Standards for the Islamic Financial Services Industry
Date posted: 10 December 2020
10 December 2020, Kuala Lumpur - The Council of the Islamic Financial Services Board (IFSB) at its 37th Meeting, has resolved to approve the adoption of two new standards.
The two new standards are:
- IFSB-24: Guiding Principles on Investor Protection in Islamic Capital Markets; and
- IFSB-25: Disclosures to Promote Transparency and Market Discipline for Takāful/Retakāful Undertakings
IFSB-24 Guiding Principles on Investor Protection in Islamic Capital Markets
The standard on investor protection in Islamic capital markets (ICM) recognises the crucial role that investor protection plays in the development and integrity of the ICM. The Guiding Principles sets out minimum requirements to be applied in the ICM for the protection of investors and the promotion of financial stability, in relation to: (i) appropriate product governance processes; (ii) robust and proportionate Sharīʿah governance processes and protection of investors against misleading claims of Sharīʿah compliance; (iii) enhanced transparency and information to investors in relation to Sharīʿah-compliant equities, and protection of minority shareholders; (iv) protection against misconduct by financial intermediaries, including suitability and appropriateness assessment, fit and proper criteria, best execution, marketing and promotion, and conflicts of interest; (v) protection against the misuse of client assets; (vi) effective means of redress or resolution of disputes in the case of misconduct; and (vii) effective investor education.
The objectives of IFSB-24 are:
- to identify the Islamic finance-specific issues that need to be considered within regulatory frameworks for investor protection;
- to define best practices for investor protection in relation to the specific features of the Islamic capital market;
- to support the development of robust investor protection frameworks for the Islamic capital market; and
- to increase harmonisation of regulatory practice, to support the development of international Islamic capital markets.
The standard is intended to apply to ICM products (including sukūk, ICIS and Sharīʿah-compliant equities) and market intermediaries operating in the ICM, particularly those that are interfacing with clients (brokers, asset managers, portfolio managers, investment advisers, etc.). The provisions in the standard also address emerging financial technologies in the ICM, including crypto-asset platforms (specifically those that deal with assets which represent an interest in a business), peer-to-peer financing platforms, equity crowdfunding platforms and online retail trading and investment platforms.
IFSB-25 Disclosures to Promote Transparency and Market Discipline for Takāful/Retakāful Undertakings
The standard on disclosures to promote transparency and market discipline for takāful/retakāful undertakings, is developed to enhance the stability and soundness of takāful/retakāful industry. It focuses on the required disclosures of takāful, particularly takāful/retakāful include various distinguishing features than conventional insurance/reinsurers. IFSB-25 is intended to set out requirements to be applied by regulatory and supervisory authorities to takāful/retakāful undertakings to promote transparency and market discipline by providing sufficient disclosures both to the market and to actual or potential participants.
The main objectives of the IFSB-25 are:
- to facilitate access to relevant, reliable and timely information by takāful market players generally, and by takāful participants in particular, thereby enhancing their capacity to monitor and assess the performance of TUs/RTUs;
- to improve comparability and consistency of all disclosures made by takāful operators (TOs)/retakāful operators (RTOs);
- to support the protection of current and potential participants, by helping TOs to offer useful information disclosures on takāful products; and
- to enable market players to complement and support, through their actions in the market, the implementation of the IFSB standards.
IFSB-25 covers two types of disclosure, public and private. First, it deals with the key disclosures that should be made publicly by TOs/RTOs with a view to market discipline. These disclosures have a mainly prudential aim, in order to ensure the soundness and stability of the industry. Public disclosures about environmental, social and governance (ESG) issues operate in a broadly similar way and, in governance particularly, overlap with the prudential disclosures. The second area of disclosure is disclosures to participants and potential participants about the contract they are considering entering, in order for them to make an informed decision about it, or about the performance of a contract under which they are already participants.
The softcopies of IFSB-24 and IFSB-25 will be available on the IFSB website, www.ifsb.org in both English and Arabic languages in due course.
The Council Meeting was attended by Central Bank Governors and Deputy Governors, top senior officials and Heads of Regulatory and Supervisory Authorities as well as senior representatives from among the Council and Full members of the IFSB, representing 21 countries and the Islamic Development Bank.
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