LONDON - Islamic finance industry infrastructure bodies AAOFI and IFSB are working together to develop a standard on Shariah governance.
Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions and Kuala Lumpur-based Islamic Financial Services Board signed a memorandum of understanding in October 2018 to cooperate by jointly undertaking technical activities and revision of prudential, Shariah, accounting and governance standards as well as to raise awareness on issues in the Islamic finance industry.
The standard originates from the MoU in late 2018 signed between AAOIFI and IFSB, according to Dr. Rizwan Malik, Senior Manager, Standards Implementation & Strategic Developments at AAOIFI.
He said the standard, which will be the first since the MoU, is part of the AAOIFI-IFSB joint project “IFSB-AAOIFI Revised Shariah Governance Framework Standard”.
"The aim is to develop a comprehensive Shariah corporate governance standard," Malik explained, adding that it is in the development stage and the exposure draft is expected to be ready by the end of 2021.
“Like all our exposure drafts there will be at least four public hearings on this standard.”
The forthcoming standard may cover:
- Shariah Supervisory Boards
- Board of directors
- Senior Management
- Shariah compliance/ review
- Internal Shariah Audit
- External Shariah Audit
- Central Shariah Supervisory Board
An IFSB spokesperson declined to comment when contacted by Salaam Gateway.
AAOIFI issues standards for accounting, auditing, Shariah, governance, and ethics for use by financial institutions such as Islamic banks.
IFSB works on prudential standards and guiding principles in areas including disclosure, solvency, and capital adequacy.
Their standards are not binding on Islamic financial institutions and regulators but they are adopted in many countries and jurisdictions.
"The [upcoming] standard will apply to the whole Islamic banking and finance industry,” said Malik.
“However, it will also depend on the specific regulator to make it mandatory / recommend it / allow voluntary adoption by Islamic financial institutions (IFIs).”
*Update: "Shariah non-compliance risk management functions" was removed from the list of issues the coming standard may cover, as it will not be included.
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