Guiding Principles On Shariah Governance Systems For Institu

Top 20 FREQUENT WORDS

shar<U+012B> 510 iifs 203 members 103 governance 75 islamic 53 compliance 50 member 49 financial 44 internal 39 management 39 pronouncements 37 resolutions 37 central 35 supervisory 34 ifsb 32 information 31 principles 31 bod 30 relevant 30 advisory 27 ensure 27 professional 27

DOCUMENT KEY POINTS

the standards prepared by the ifsb follow a lengthy due process as outlined in its guidelines and procedures for the preparation of standards guidelines which includes the issuance of exposure drafts and the holding of workshops and where necessary public hearings

sultan bin nasser al suwaidi governor central bank of united arab emirates in alphabetical order of the country the member represents i

al hamidy a saudi arabian monetary agency deputy chairman mr osman hamad mohamed khair a central bank of sudan until aug members dr sami ibrahim al suwailem islamic development bank mr khalid hamad abdulrahman hamad central bank of bahrain mr gamaal m

in the interests of clarity this these include i guiding principles for governance for institutions offering only islamic financial services iifs a excluding islamic insurance tak ful institutions and islamic mutual funds also known as ifsb guiding principles on governance for islamic collective investment schemes also known as ifsb and guiding principles on governance for tak ful operations also known as ifsb

document shall adopt the following definition of shar ah governance system and the other key terminology shar ah governance system refers to the set of institutional and organisational arrangements through which an iifs ensures that there is effective independent oversight of shar ah compliance over each of the following structures and processes a issuance of relevant shar ah pronouncements resolutions shar ah pronouncements resolutions refers to a juristic opinion on any matter pertaining to shar ah issues in islamic finance given by the appropriately mandated shar ah board

d an annual shar ah compliance review audit for verifying that the internal shar ah compliance review audit has been appropriately carried out and its findings have been duly noted by the shar ah board the shar ah board who issued the shar ah pronouncements resolutions can take charge of this process having received feedback and reports from the isru
c an internal shar ah compliance review audit for verifying that shar ah compliance has been satisfied during which any incident of non compliance will be recorded and reported and as far as possible addressed and rectified ifsb sets out that shar ah pronouncements resolutions issued by the shar ah boards should be strictly adhered to

an illustration of how the shar ah governance system complements the existing governance control and compliance functions within an iifs comparative to the scenario in a conventional financial institution is provided below functions typical financial additions in iifs institution governance a c board of directors a c shar ah board control a c internal auditor a c isru a c external auditor a c external shar ah review compliance a c regulatory and financial a c iscu compliance officers unit or department

furthermore it would facilitate the adoption of a governance framework that is in this respect the ifsb realises that the stakeholders should be empowered by means of appropriate systems and procedures before they can play a part in sharing such responsibility therefore by having a clear line of reporting for example shar ah boards may interact in a more systematic and purposeful manner with the various organs of governance such as the board of directors bod iscu isru and external auditor as well as shareholders and other stakeholders
it must be appreciated however that as the ifsi continues to grow best practices would a and should a also change as markets alter and develop and as technology financial engineering and improved coordination between supervisory authorities and market players make other strategies available

the stakeholders sanctions may range from reputational damage for the iifs to loss of trust in the management a forcing some managers to quit or to take legal actions based on contractual ter miss supervisory authorities particularly should have adequate enforcement mechanisms ranging from the power to direct necessary disclosures to imposing reprimands and fines in order to curb deliberate noncompliance
ifsb explains that the comply or explain approach builds on the idea of market discipline whereby stakeholders including the supervisor are empowered to react to unsatisfactory governance arrangements or sub standard disclosures which can be either false substantially incomplete or misleading

the ifsb has consistently required in its standards and guiding principles that every iifs shall have adequate and effective access to a shar ah board who will have a clear mandate and responsibility for ensuring that the iifs adheres to shar ah rules and principles with respect to all islamic financial products and services that it offers
some of these supervisory authorities have even gone one step further whereby they prohibit the members of the national shar ah panel from sitting on a shar ah board of the market players in order to remove any perception of conflicts of interest

hence prior to establishing or engaging its shar ah board an iifs should be fully aware of its options which include the following � to appoint a reputable and credible shar ah board � to support the shar ah board by appointing an iscu or an individual shar ah officer whereby the shar ah board shall be able to mandate and delegate some of its functions to the iscu and � for the shar ah board to have at least three members possibly trained in different schools of jurisprudence have a mix of members with different lengths of experience and where appropriate comprise of different nationalities
for example a conventional bank engaging in islamic finance transactions on an ad hoc basis or an islamic window of a conventional bank with a very limited offering of islamic finance products may not be expected to have an inhouse shar ah governance framework with the resources of a full fledged iifs or an islamic window with a very broad range of islamic finance products

in order for the shar ah board to have a precise chain of command and accountability towards the respective stakeholders of the iifs it has to be equipped with i a mandate that grants it appropriate powers to carry out its role and functions ii well organised operating procedures with regard to meetings the recording of meetings decision making processes and to whom its decisions will be passed for effective implementation including processes to review those decisions whenever necessary and iii a sound code of ethics and conduct that would enhance the integrity professionalism and credibility of the members of the shar ah board

the bod the shar ah board the management and the supervisory authority as well as other stakeholders such as the customers suppliers and the public should always seek to improve communications among themselves in order to avoid misunderstandings and confusion in line with the quranic injunction in surah al maidah verse help ye one another in righteousness and piety but help ye not one another in sin and rancour fear allah for allah is strict in punishment

the bod of iifs should consider the following criteria when assessing the fitness and propriety of individuals to serve on the shar ah board as well as officers of the iscu and isru i good character a that is honesty integrity fairness and reputation and ii competence diligence capability and soundness of judgement

training policies shall be established with adequate consideration given to training needs to ensure compliance with the iifs s operational and internal control policies and procedures and all applicable legal and regulatory requirements to which the iifs generally and members of the shar ah board and internal shar ah officers particularly are subject

where appropriate iifs shall act on the results of the performance evaluation such as considering nominations of new members to be appointed to the shar ah board or seeking the resignation of any member of the shar ah board who fails to meet adequately the terms and conditions of his or her contract
these performance criteria should not be arbitrarily or unilaterally changed by the iifs and where circumstances deem it necessary for any of the criteria to be changed the onus should be on the iifs through the bod to justify this decision

in order to uphold the integrity and credibility of the shar ah board its members must not only be able to exercise independent judgement without undue influence or duress especially from the management of the iifs but also be seen to be truly independent

if the iifs wishes still to consider a member of the shar ah board or shar ah advisory firm as independent in spite of the existence of one or more of these relationships it should disclose in full the nature of that relationship and bear the responsibility for explaining why the member or the firm should be considered independent
the shar ah board should have separate and independent access to the iscu and isru respectively to check whether internal control and compliance procedures have been appropriately followed and that applicable rules and regulations to which the iifs is subject have been complied with

iifs shall have a procedure for the shar ah board either for each individual member or as a group in the furtherance of their duties to take independent professional advice such as on legal accounting financial or valuation issues if necessary at the iifs s expense
where the shar ah board has its own secretariat the appointment and removal of members of the secretariat should be appropriately carried out in consultation with the shar ah board

it is a key concern of professional ethics that confidential or sensitive information obtained by a member of the shar ah board or shar ah advisory firm while serving an iifs should not be used by them in ways that could be detrimental to that iifs particularly in ways that might give a competitive advantage to its competitors

in the event that the shar ah board or one of its members happens to leak or reveal confidential or market sensitive information to inappropriate parties the iifs should at least have appropriate risk management and control processes in place to limit the damage of such leakage
expressly set out that they shall preserve and secure the confidentiality and secrecy of business and market sensitive information shared with them by the iifs

although members of the shar ah board and shar ah advisory firms should be fully aware that appropriate procedures and processes must be adhered to before any shar ah pronouncement resolution is developed and concluded iifs also need to be careful as to how the shar ah pronouncement resolution is disseminated or issued to the press or the general public
in this respect bearing in mind that the shar ah board or its members as free agents are generally allowed to provide service to any client other than the iifs without any restriction each iifs may need to establish additional safeguards to ensure that shar ah pronouncements resolutions developed based on their business intelligence and internal information would not be exploited by inappropriate parties

for better recording and dissemination of information it would be helpful if they were to produce in the annual reports a section on shar ah compliance by the iifs and shar ah pronouncements resolutions issued by the shar ah board and or its members including clarifying the process of how the shar ah board reached its decisions
from time to time members of the shar ah board should participate in various seminars workshops and meetings of ulama specialised in fiqh al muamalat to present and debate existing and new shar ah pronouncements resolutions

such units or shares constitute in effect claims of ownership of the undivided assets of the fund which can consist of financial or non financial assets and give rise to the right or obligation to share in the profits or losses derived from those assets b the fund is established and managed in accordance with shar ah rules and principles and c whether or not the icis is managed by the institutions that established or sponsored it it is separately financially accountable from those institutions ie it has its own asset andliabilities profile but excluding sukuk as defined under ifsb

for this purpose the iifs should also have a shar ah process manual which specifies the manner in which a submission or request for shar ah pronouncements resolutions should be made to the shar ah board the conduct of meetings of the shar ah board and the manner of ensuring operational compliance with any decision of the shar ah board
appointment resignation or termination of service in their contract for service members of the shar ah board shall be informed of i who within the iifs is authorised to appoint or terminate its service or the service of its members ii how long is the tenure of the appointment and iii whether specific reasons and or a certain notice period need to be served before the contract for service is terminated by either party

in case the iifs operates within a jurisdiction where there is a central national highest body that is mandated to issue shar ah pronouncements resolutions for ifsi in the country the central shar ah body vii adopt any shar ah pronouncements resolutions issued by the central shar ah body and address any arising issues

reports by the shar ah board at the end of any consultation between the iifs and the shar ah board the shar ah board shall have the discretion to produce its reports in the form of i a fact finding report ii an ex ante report in relation to product design and development iii an ex post internal shar ah audit review report on the products offered to customers and iv an annual shar ah compliance report

in the event the iifs includes professionals such as lawyers accountants or economists who have some knowledge of shar ah but are not particularly trained in that discipline as members of the shar ah board the quorum set should ensure that they would not dilute the value of decisions made by the shar ah board on shar ah related matters
power to invite relevant officers to sit in meetings the chairman a and in the absence of the chairman the alternate chairman a is empowered to invite any relevant officers to sit in its meetings

minutes of meetings the secretary of the shar ah board shall be responsible for recording the minutes of shar ah board meetings
upon request they shall be made available to the internal auditor external auditor and examiner from the supervisory authority

appendix basic professional ethics and conduct for members of the shar ah board in the performance of his or her duties to any iifs a member of the shar ah board is expected to conduct himself or herself at all times in a manner consistent with the principles governing the profession and of the organisation to which he or she belongs
he or she shall always strive to i uphold fairness and equity for all the stakeholders ii act in a manner that preserves his or her honesty and integrity iii exercise appropriate discretion in decision making by taking into consideration not only the technical aspects of shar ah compliance and iv appreciate the diversity of opinions among various schools of thought and differences in expertise among his or her fellow members of the shar ah board

disciplinary sanctions the code of conduct developed by the iifs shall be enforceable on the members of the shar ah board by application of disciplinary sanctions which shall include a power of exclusion and termination

however a member of the shar ah board is generally expected to be able to display an understanding of i the shar ah rules and principles that apply to the iifs s proposed activities ii the general legal and regulatory framework that may apply to the functions that it would perform and iii the broad impact of introducing financial products to the market and the public generally based on the maq sid al shar ah

it is important to ensure that it is transparent so that it is not misused or abused by the bod or senior management of the iifs to force their will on the shar ah board or to compromise its independence

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

islamic risk murabaha minimum iifs NA customers financing customer banking profit credit maximum shariah underlying limit service corporate required mode

DOCUMENT REFERENCES

Number of Pages

39

Published Date

2009-12-31 20:21:00

Full Document

Read the Full Document

Guiding Principles On Shariah Governance Systems For Institu

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

RELATED DOCUMENTS

DOCUMENT REFERENCES

Number of Pages

Published Date

Full Document

Navigation menu

Personal tools

Namespaces

Variants

Views

More

Search

Navigation

Tools

Categories