The IFSB issues Exposure Draft on Revised Capital Adequacy Standard for institution offering Islamic banking services (ED-RCAS) for public consultation

4 November 2019, Kuala Lumpur - The Islamic Financial Services Board (IFSB) has today issued the Exposure Draft on Revised Capital Adequacy Standard for Institutions Offering Islamic Banking Services (ED-RCAS) for Public Consultation for a period of sixty days, starting from 4 November 2019 until 02 January 2020. In view of this, IFSB invites comments from central banks, regulatory and supervisory authorities, international organisations, institutions offering Islamic financial services (IIFS), academics and other interested parties.

The aim of ED-RCAS is to align the IFSB capital adequacy standard (IFSB-15) with global capital standards, particularly the Basel III final reforms. The ED-RCAS made several enhancements to the IFSB-15 with the aim of making it more comprehensive and robust and in tune with global best practice in terms of regulatory capital adequacy framework for institutions offering Islamic banking services. The incorporation of the global best practices in the Standard will ensure the provision of a level playing field to IIFS vis-à-vis the conventional financial institutions subjected to capital regulatory framework. The ED-RCAS provides enhanced guidance to the RSAs and with the necessary flexibility for its application across regions and on small to fairly large and sophisticated IIFS. The main objectives of this Standard is to:

(a)        Assist the IIFS and their supervisory authorities in the implementation of a capital adequacy framework that will ensure effective coverage of risk exposures of the IIFS and allocation of appropriate capital to cover these risks, thus enhancing the resilience of the IFSI;

(b)        Provide enhanced guidance on the maintenance of high-quality regulatory capital components by IIFS, which comply with Shari'ah rules and principles;

(c)        Enhance the guidance provided by the earlier IFSB capital adequacy standards in addressing the capital adequacy requirements of various risk exposures related to Shari’ah-compliant products and services offered by IIFS;

(d)        Provide enhanced guidance on the capital adequacy treatment of an IIFS’s involvement in Sukuk issuance and securitisation processes in various capacities;

(e)        Address some specific concerns in the course of implementation of the earlier IFSB capital adequacy standards and guidance notes; and

(f)         Adapt international best practices, as well as current and emerging standards, relating to capital adequacy for IIFS

In line with the IFSB due process for developing standards, the IFSB will be organising a public hearing on 15 November 2019 in Jakarta, Indonesia to invite and solicit feedback on the Exposure Draft and its contents. A Webinar will also be held on 20 November 2019, details of which will be announced in due course. Participation in the Public Hearing and Webinar is free and open to all.

The softcopy of ED RCAS is available on the IFSB website, www.ifsb.org and the Secretariat invites all interested parties, especially members of the IFSB, to send their comments on ED RCAS to the project team through email at ifsb_sec@ifsb.org latest by 02 January 2020.