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Bank Negara Malaysia
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IFSB
AAOIFI
Bank Negara Malaysia
SACs effort to regulate IFI on Shariah &
corporate governance
Resolutions of Shariah Advisory Council of Bank
Negara Malaysia
Guidelines on Corporate Governance for
Licensed Islamic Banks (revised BNM/GP1-i)
Guidelines on the Governance of Shariah
Committee for Islamic Financial Institutions
Shariah Governance Framework for Islamic
Financial Institutions
Guidelines on Corporate Governance for
Licensed Islamic Banks (revised
BNM/GP1-i)
Promotes the adoption of effective and high standards
of corporate governance practices by Islamic bank
Formulated based on the fundamental concepts of
responsibility, accountability and transparency, with
greater emphasis on the role of the board and
management.
The Guidelines contained broad principles dealing
with:
Board matters;
Management oversight;
Accountability and audit; and
Transparency.
14 Principles
14 principles
Shariah Governance Framework for
IFI
The primary objective is to:
enhance the role of the Board, the Shariah
Committee or Shariah Supervisory
Board and the management in relation to
Shariah matters.
enhancing the relevant key organs having the
responsibility to execute the Shariah
compliance and research functions to achieve a
Shariah-based operating environment
Key organs in SGF
Key organs Functions
Board of directors Oversee on Shariah compliance aspect of the IFIs overall operations. Here, the board is
ultimately responsible for establishing an appropriate Shariah governance framework for an
IFI. The board is expected to understand the Shariah non-compliance risk associated with
Islamic finance business and its implications to the IFI.
Shariah Committee or Consist of qualified members with Shariah background who are able to deliberate Islamic
Shariah Supervisory finance issues and provide sound Shariah decisions.
Board
Management Responsible to provide adequate resources and capable manpower support for every function
involved in the implementation of Shariah governance. This is to ensure that the business
operations are executed in accordance with the Shariah.
Shariah Review This practice should be conducted on a continuous basis. This review should cover processes
and deliverables as well as determining that they satisfy the needs of the Shariah.
Shariah Audit This audit should be done on an annual basis to verify that the IFIs key functions and
business operations comply with Shariah.
Shariah Risk To practice shariah risk management process to identify all possible Shariah non-compliance
Management risks and take remedial measures to reduce the risk.
Shariah Research To develop an internal Shariah research team to conduct research on Shariah.
Securities Commission
Statutory body entrusted with the responsibility of regulating
and systematically developing the Malaysia's capital
markets.
It has direct responsibility in supervising and monitoring the
activities of market institutions and regulating all persons
licensed under the Capital Markets and Services Act 2007.
The Shariah Advisory Council (SAC) was established in 1996
under the authority of the Securities Commission Malaysia.
The duty of the council is to advise the Securities Commission on
Islamic capital market operations, standardize and harmonize the
application of Shariah principles and concept and, review Shariah
compatibility with other conventional instruments and new Islamic
Instruments.
Its most important function is to endorse the permissible or
permitted counters in its list of Shariah-compliant securities.
ISLAMIC FINANCIAL SERVICES
BOARD (IFSB)
International standard-setting organisation that
promotes and enhances the soundness and stability of
the Islamic financial services industry by issuing global
prudential standards and guiding principles for the
industry, broadly defined to include banking, capital
markets and insurance sectors
IFSB has issued fifteen Standards, Guiding Principles
and Technical Note for the Islamic financial services
industry.
Our focus:
IFSB-3: Corporate Governance
IFSB-10: Guiding Principles on Shariah
Governance System
IFSB 3: Corporate Governance
Principle 1.1 IIFS shall establish a comprehensive governance
policy framework which sets out the strategic roles
and functions of each organ of governance and
mechanisms for balancing the IIFSs
accountabilities to various stakeholders.
i. General
governance
approach of Principle 1.2 IIFS shall ensure that the reporting of their financial
IIFS and non-financial information meets the
requirements of internationally recognized
accounting standards which are in compliance with
Shar`ah rules and principles and are applicable to
the Islamic financial services industry as recognized
by the supervisory authorities of the country.
IFSB 3: Corporate Governance
iv. Transparency of Principle 4 IIFS shall make adequate and timely disclosure to
financial reporting in IAH and the public of material and relevant
respect of investment information on the investment accounts that they
accounts manage.
IFSB 10: Shariah Governance System
set of institutional and organizational arrangements through which an
IFI ensures that there is effective independent oversight of Shariah
compliance:
Issuance of relevant Shariah pronouncements/ resolutions by
Shariah board/committee after going through due processes.
Dissemination of information on Shariah pronouncements/
resolutions to the operative personnel of the IFIs who monitor the
day-to-day compliance with the Shariah
pronouncements/resolutions.
Internal Shariah compliance unit (ISCU) or Shariah compliance
officer who is a part of the IFIs compliance team
Internal Shariah compliance review/audit (ISRU) to verify that
Shariah compliance has been satisfied.
Conduct of an annual Shariah compliance review/audit to verify that
the internal Shariah compliance review/audit has been appropriately
carried out and its findings have been duly noted by the Shariah
board.
IFSB 10: Shariah Governance System
Part I Relates to the general approach to Shariah Governance System, whereby various ex-ante and
ex-post processes considered as essential parts of good governance practices in other
internationally recognized governance standards, such as the precise terms of reference for
Shari`ah boards, appropriate alignment of incentives, proper record-keeping, adoption of a
professional code of ethics, etc., are adapted in order to strengthen the Shari`ah Governance
System.
Part II Suggests various measures to ensure reasonable expertise and skill-sets in `ah boards, and to
evaluate their performance and professional development.
Part III Aims at safeguarding the independence of Shari`ah boards, particularly from the management
of IIFS, by highlighting various issues arising from potential conflicts of interest and
recommending how they should be managed.
Part IV Emphasizes the importance of observing and preserving confidentiality by the organs of Shariah
governance.
Part V Focuses on improving consistency in terms of the professionalism of members of the Shariah
board, which would be crucial in enhancing their credibility and confirming their integrity
through a set of best practices.
AAOIFI
Bahrain-based main international organization that
formulates and publishes accounting, auditing, ethics,
governance and Shariah standards for the Islamic
finance industry.