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The IFSB Releases Working Paper on Risk Based Supervision in Islamic Banking

Date posted: 17 December 2020

17 December 2020, Kuala Lumpur - The Islamic Financial Services Board (IFSB) today issued its 15th research paper in the Working Paper series, titled, “Risk-Based Supervision in Islamic Banking.” The working paper is jointly written by both the IFSB and the Saudi Arabia Central Bank (SAMA).

WP-15 investigates the risk-based supervisory (RBS) practices among the IFSB regulatory and supervisory authority (RSA) members for the Islamic banking industry in their respective jurisdictions. Findings reveal that RBS frameworks are equally as relevant, applicable and important for Islamic banks (IBs) as they are for conventional banks (CBs). However, applying RBS in Islamic banking, including for IBs that are domestic systemically important banks (D-SIBS), would require taking cognisance of some additional peculiar risks that are not applicable to conventional banks. These risks include Sharīah non-compliance risk, rate-of-return risk, equity investment risk and displaced commercial risk.

The Secretary-General of the IFSB, Dr. Bello Lawal Danbatta stated, “This Working Paper is the first issuance in the IFSB’s Working Paper series this year. He further added, “the WP-15 describes the views of RSAs on the RBS practices for Islamic banks in IFSB jurisdictions. RBS framework for IBs should capture and include the peculiar risks identified in the paper in the final risk rating and assessment of IBs for supervisory purposes. To this end, it is essential that IBs develop key performance indicators (KPIs) with a framework of tolerance levels for all peculiar IB risk categories,” he further added.

WP-15 is available for download from the IFSB website: www.ifsb.org