It is vital to be well versed in both Shari’ah and finance, as it affects the integrity of the Islamic financial industry. 3. Shari’ah boards and advisors face a variety of other challenges, and many more are to be expected as the market grows. Shura in Islam is based on the rule of Allah’s and Sunna Muhammad SWT and loyalty to those rules in basis of faith. The Financial Panic of 2008 The first signs of an impending financial crisis appeared in the US in 2007, when US real estate prices began to collapse and early delinquencies in recently underwritten sub-prime mortgages began to spike. 0000001940 00000 n [2] See Faris Mahmoud Abomouamer, An Analysis of the Role and Function of the Syariah Control in Islamic Banks, (Cardiff: University of Wales), 1989 at p. 366. Scholars are the people of power and decision. Principle 2.2 directs Islamic financial institutions to facilitate continuous professional development for the Shari’ah board and its officers whilst Principle 2.3 mandates institutions to assess the performance of the Shari’ah board, its contributions and commitment. To advise Board of Directors on Shari’ah Matters in its business operation, To endorse and validate relevant documentation, To assist related parties on Shari’ahfor advice upon request, To advise on matters to be referred to the Shari’ah Advisory Council BNM (SAC), To assist SAC on reference for advice.”[10]. 2. As mentioned earlier, Shari’ah advisory boards comprised of Shari’ah experts are the main actors in Shari’ah governance. The board is composed of at least three jurists. Their initiative is commonly known as “Islamic finance,” a niche of global financial … Apart from the various tasks that need to be undertaken by the Shari’ah board or Shari’ah advisor, there remain a few challenges that they must overcome for better service. var path = 'hr' + 'ef' + '='; You need JavaScript enabled to view it. Board members are the fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission. Sharia prohibits certain elements that are common in conventional finance, such as interest and speculation. Such competence and caliber will certainly enhance and speed up the process of Shari’ah advisory. In addition he is also prolific author of academic works specifically in the areas of Islamic Banking and Finance. Finally, Principle 5.1 recommends some practices that if followed may assist in attaining consistency in Islamic finance practices. 0000020565 00000 n Shari’ah governance affirms that Shari’ah is backbone of this industry as well as its main driver. 1. 0000001649 00000 n The challenge of secrecy and confidentiality, whereby absence of full disclosure on the part of the financial institutions can prove to be detrimental to the legitimacy of products and affect the rights of customers. [4] Board that serves at a particular Islamic finance institution and engaged by them. DTTL (also referred to as "Deloitte Global") does not provide services to clients. However, first and foremost, it must be emphasized that the Islamic finance industry in toto is accountable to Allah for all its practices, thus, adherence to Shari’ah in all activities undertaken is the responsibility of all Islamic finance stakeholders.[1]. Financial oversight represents only one area of director responsibility and this issue should not detract attention from other important governance responsibilities such as vision, mission, strategic direction, programs, personnel and advocacy. The draft recommends that Islamic finance institutions must ensure proper functioning Shari’ah governance is in place in the institution and that Shari’ah compliance is a shared responsibility and not solely placed on the Shari’ah board. Among these practices are: observation of the legal and regulatory framework for the issuance of Shari’ah resolutions, adherence to appropriate procedure and process (ijtihad methodology) to develop and conclude a Shari’ah pronouncement, making available supporting evidence for the resolution issued, trying as much as possible to follow available resolutions issued by the central Shari’ah authority or other international fatwa bodies, participation in international Shari’ah dialogue to implant mutual respect and harmonization and adopting a specified process for revision of resolutions. Legitimacy and Enforcement of Shari’ah Decisions. 4 Evidence gathered from conversations with PricewaterhouseCoopers client base. In addition to the above point, it is also important to note that while Shari’ah advisors deserve remuneration for the professional service they render and efforts invested, financial independence has to be achieved as well. Part 1: General Provisions; Part 2: Conduct of Islamic Financial Business; … Principle 1.2 declares that the Islamic finance institution has to ensure that its Shari’ah board shall have clear terms of reference regarding its mandate and responsibility, well-defined operating procedures … Their existence and decisions are very crucial as they serve to ensure public confidence of the legitimacy of Islamic finance operations and products as well as ensuring that Islamic finance is operating and developing based on Shari’ah guidelines. The board … [8] This will include facilitating Shari’ah audits, ensuring Islamic and ethical management practices, protecting consumers’ rights and ensuring the accountability of the financial institutions. At present some parties such as the International Islamic Financial Market (IIFM) and the Association of Islamic Banking Institutions of Malaysia (AIBIM) are working towards producing standardized documents. Q���'?�~��u�����ϝ�A��aaK��L��P��Aƃ'�XyT62�Z$L��;�Z�$&^R��xqp�v���v � var addy_text17313 = 'akram' + '@' + 'isra' + '.' + 'my'; (6) Any person who contravenes the provisions of this section shall be guilty of an offence and shall on conviction be liable to a fine not exceeding twenty thousand ringgit or to imprisonment for a term not exceeding three years or to both such fine and imprisonment. Apart from the guidelines issued by the regulators, the Islamic Financial Services Board (IFSB) has also issued Exposure Draft on Guiding Principles for a Shari’ah Governance System which serves as a guideline to the best services and practices by Shari’ah boards. Therefore, it is important to affirm that qualified and competent Shari’ah advisors are appointed and that they are given various forms of assistance, exposure, resources and training to further develop them. Another aspect that needs to be considered by Shari’ah scholars is their role in strengthening the governance of Islamic financial institutions as well as instilling Islamic values in the financial institutions’ business operations and governance. More importantly, Shari’ah governance ensures that the industry is at all times in accord with the wishes and laws of the Almighty by ensuring the legitimacy of the products offered. 2), Article 5 and 6. Shari’ah advisors have many roles to play, and their advice and expertise are sought after in many areas. Financial institutions as financial intermediaries and providers of funds are expected to demonstrate exemplary roles on their ongoing commitment towards being socially responsible and should take steps to embark on ethical banking practices in order to achieve a more holistic approach of becoming a responsible corporate citizen. REPORTING STRUCTURE X. In discharging their duties there are several considerations that particularly need to be observed: Firstly, ensure that product development uses the acceptable principles of the Shari’ah and follows acceptable Shari’ah standards, whether those standards are developed locally or internationally. For instance, retail products must not be neglected, although wholesale products may yield more profits. Some jurisdictions, such as Malaysia, have also listed the duties and responsibilities of Islamic finance institutions to support the Shari’ah board’s function. The IFSB document sets out seven guiding principles (the guiding principles) of pruden- tial requirements in the area of corporate governance for institutions offering only Islamic financial services (IIFS) (excluding (1) Islamic insurance (takaful) institutions; and (2) Islamic … Mordhah, N. 2012. Corporate Responsibility & Sustainability. 4 Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013. It is a component of the operational risk. Across the world, there is widespread belief that humanity must conduct itself responsibly and sustainably—a view shared by many Muslim communities as they endeavor to express their faith-based values in business. This shall add to the Islamicity of the institution, and an Islamic standard of Corporate Social Responsibility (CSR) should be incorporated. One of the most important responsibilities for many boards is to hire and set the compensation of a talented In order to ensure the standard of advisory services provided, a Shari’ah advisor should possess the following criteria: In addition to the above criteria, the members shall be practicing Muslims who preach what they believe, in order to maintain the credibility of the decisions made. The institution’s article of association or the Shari’ah board’s appointment letter should explicitly state that all of its policies have to be Islamic and Shari’ah compliant and, thus, the Shari’ah scholar or Shari’ah board needs to be engaged to ensure that such objectives are achieved. The rapid growth and advancement of Islamic finance has resulted in the development of Shari’ah standards and frameworks for product development by international bodies such as AAOIFI and the Islamic Financial Services Board (IFSB) or national bodies like the Shari’ah Advisory Council of central banks and other financial institutions. 6. The installation of these elements has been elaborated in the recent IFSB Exposure Draft on Guiding Principles for the Shari’ah Governance System. Islamic finance strictly complies with Sharia law. The importance of Sharia supervision 3. Since the beginning of modern Islamic finance, the work of the Shariah boards has become more standardized. This is highly crucial if no dedicated Shari’ah or Islamic finance court is available in the jurisdiction or if Islamic finance cases are decided by a judge who is not well versed with Shari’ah. This is due to the fact that only qualified and competent members will be able to perform their role well. The lack of knowledge and comprehension among Shari’ah scholars about modern financial practices. This email address is being protected from spambots. ARTICLE 3.19 : The Executive Board has the right to establish an Expert Committee, to invest the cash surplus of the Organisation’s reserves for short and … 0000001584 00000 n Competence of the Shari’ah board, transparency and the supply of resources and research works as well as human assistance to the board by the Islamic financial institution will assist in overcoming this challenge. [8] See Zeti Akhtar Aziz, Islamic Banking and Finance Progress and Prospects Collected Speeches: 2000 – 2005, Bank Negara Malaysia: Kuala Lumpur, 2005 at p. 205. //--> Close interaction with various Islamic finance stakeholders is required to further enhance their understanding, and they should aim and strive to contribute as much as possible to the industry and to the Shari’ah. As opposed to conventional funds, Islamic Funds are in total compliance with the Shariah rules and regulations to earn “halal” profits in strict conformity with the precepts of Islamic Shariah. They are the elements of competence, independence, confidentiality and consistency. It also assists the Shari’ah board members to understand all their responsibilities and execute them accordingly. Dr. Akram holds a B.A. Principle 3.1 of the Draft reminds the Shari’ah board to be free from conflict of interest issues and that they must at all time be capable of exercising independent and objective judgment. Thus, initiatives to educate, train and produce new scholars are very much welcomed and should be intensified, and Islamic financial institutions need to realize that they should make significant investments to develop the necessary human resources. In addition, they shall conduct research in order to enhance their understanding of issues forwarded to them that require their decisions. 6 Corporate governance: Board responsibilities July 2018 is recognised that different governance models may apply depending … Each Islamic finance institution has a sharia supervisory board (SSB). In addition, the best practice in Shari’ah governance require that the boards be comprised of more than three experts, thus allowing for the practice of collective ijtihad and the adoption of consensus. [9] Association of Islamic Banking Institutions Malaysia (AIBIM) has recently produced Interbank Murabahah Master Agreement (IMMA) whilst International Islamic Finance Market (IIFM) has produced Master Agreement for Treasury Placement (MATP) as a standard contract to be applied in the Islamic finance industry. Effective Shari’ah governance requires the setting up of a clear and comprehensive framework to regulate the Islamic finance industry and guide its development. At present, different models of Shari’ah boards are operating in various jurisdictions, and the processes and procedures adopted for Shari’ah governance vary as well from one jurisdiction to another. Apart from their duties to the Islamic financial institutions that engage them, Shari’ah advisors should also play significant roles in the growth and betterment of the industry on the national level, at least, if not the global. This is important, as Islamic finance is not only related to the ‘legal’ aspects of Islam, but it is also part of Islam’s belief system. Insights & Analytics. The application of Alternative Dispute Resolutions (ADR) methods to Islamic finance is another aspect pertinent to addressing the ever-increasing disputes related to Islamic finance. This is especially needed in countries that adopt a dual system, as they have both Islamic and civil law and two financial systems, conventional and Islamic. The Islamic financial system, which is commonly characterized as a moral and ethical system, must contribute effectively to overall wealth creation, growth and development, and greater shared prosperity.[7]. It also lists the types of data and documents considered confidential and those which are not and proposes certain disciplinary or administrative actions that may be taken against Shari’ah board members for breaching the non-disclosure agreement. This duty usually falls to the board treasurer, as they are responsible for maintaining the community’s financial records. All Rights Reserved. At present, he is the Member of Bank Negara Malaysia Shari’ah Advisory Council (SAC), Member of Shariah Advisory Employees Provident Fund (EPF), Member of HSBC Amanah Global Shari’ah Advisory Board, Member of Yassar Limited (Dubai) Shari’ah Advisory Board, Member of EAB (London) Shari’ah Advisory Board, Chairman of Islamic Advisory Board of HSBC Insurance Singapore, Shari’ah Advisor to ZI Syariah Advisory Malaysia, Member of Shari’ah Advisory Council International Islamic Financial Market (IIFM), Bahrain, Committee member of AAOIFI Shari’ah Standards, Bahrain and other Boards locally and internationally. It is highly desirable that Shari’ah scholars be involved in product development from the early stages up until the contract is concluded. A bird's-eye view of Kuala Lumpur July 8, 2020. In fact, some have been produced, such as the Murabahah Master documents by IIFM and AIBIM. Therefore, Islamic finance has to be reviewed on a macro-scale, namely, ensuring that it is serving the Ummah effectively. As some jurisdictions have provided a clear framework on Shari’ah governance or Shari’ah advisory, a clear outline of Shari’ah board’s duties and responsibility can be easily found. 0000000016 00000 n IslamicMarkets.com has played a “significant role in promoting Islamic Finance globally and opening new horizons for the industry”. Sharia prohibits certain elements that are common in conventional finance, such as interest and speculation. However, at present they are also involved in product development and innovation, in addition to supervision of Islamic finance operations as well as, on certain occasions, development of policies and regulations for Islamic finance. These disciplines include banking and finance, accounting, law, economics, information technology and others. Such gap is dangerous, as it will leave the Shari’ah board to work in isolation without the support of various parties, and the industry shall not have clear aim or direction. %%EOF Apart from the above structure, certain quarters have suggested that the industry appoint a permanent Shari’ah advisor in each Islamic finance institution. The Handbook contains the complete record of FCA Legal Instruments and presents changes made in a single, consolidated view.. All regulated firms must comply with the rules set out in the Handbook. 166 19 0000006672 00000 n It serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. It is hoped that such efforts will continue in the future, as the Islamic finance industry still has a long way to go before it matures and fully develops. International Journal of Humanities and Social Science 2 (5). It may also be given a mandate to issue a professional certification to Shari’ah advisors, without which they will not be able to practice, and to determine its renewal by periodic review and screening to ensure that the Shari’ah advisor holds the necessary professional and educational qualifications and at all time exercises competent and ethical conduct. Shari’ah Research Academy for Islamic Finance (ISRA) since May 2008. Dual-regulated firms will need to consider both FCA and Prudential Regulation Authority (PRA) rules, so should also refer to the PRA Rulebook. Welcome to the Financial Conduct Authority website We aim to make financial markets work well so that consumers get a fair deal Protecting consumers We secure an appropriate degree of protection for consumers Enhancing market integrity We protect and enhance the integrity of the UK financial system Promoting competition We promote effective competition in the interests of consumers . A number of laws created the DIFC and the necessary centre bodies, which include the DFSA. Notwithstanding that, the Shari’ah advisor may become an expert witness in case of litigation of Islamic finance disputes, so they must be well equipped and of a calibre to provide assistance to the court on the Shari’ah-compliant transactions. Fulvio joined PwC in July 1987. Thus, without a Shari’ah board, their establishment and operation is null and void, according to the law. Corporate financial reporting requirements in Malaysia are outlined in several laws, which include the Companies Act of 1965, Financial Reporting Act of 1997, Central Bank of Malaysia Act of 2009, Financial Services Act of 2013, Islamic Financial Services Act of 2013, and the Securities Commission Act of 1993. Central to this fast growing segment of the international banking and finance scene is the Shariah Supervisory Board (SSB) which can be defined as the group of Shariah scholars supervising and guiding Islamic Banks & Financial … The most serious recession […] The IFSB … In relation to the Shari’ah board and their duties, the recommendations or guidelines can be summarized as in the following: Principle 1.2 declares that the Islamic finance institution has to ensure that its Shari’ah board shall have clear terms of reference regarding its mandate and responsibility, well-defined operating procedures and lines of reporting, and good professional ethics and conduct. 4 See Brian C Cheffins, ‘Current Trends in Corporate Governance: Going from London to Milan via Toronto’ (2000) 10 Duke Journal of Comparative and International Law 5. In addition, Shari’ah scholars should be involved in laying the foundation stone of an institution and advise the institution on many aspects including the policies and rules of the institution in order to make them Shariah compliant and be of an Islamic mould. [9], Alternative Dispute Resolution (ADR) in Islamic Finance. The instruments selected for investment by the Fund Manager are approved and monitored by the Shariah Advisory Board of the Fund as Shariah compliant. 2.Not to be aware of the rules of Islamic transactions by all employees of Islamic finance institutions. In fact, it is important that the legal and regulatory framework and requirements be given due attention; failure to do so shall give rise to serious and negative consequences. These principles touch on the element of competence of the Shari’ah board and its officers and how such matter can be attained and enhanced. [Section 2 amended by section 54(h) of Act No. The Islamic Financial Services Board (IFSB), established in 2002 in Malaysia, is responsible for issuing supervisory and regulatory 2 Shari’ah or Islamic jurisprudence is based on primary and secondary sources of law. 2003. Islamic finance is a global financial system that complies with sharia (Islamic law) — a code of conduct that guides all aspects of Muslim life. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. 0000007681 00000 n Service as a director or officer of a federally insured bank represents an important business assignment that carries with it commensurate duties and responsibilities. Considerable knowledge or mastery in fiqh mu’amalat and usul al-fiqh; Sufficient knowledge of the current Islamic and conventional finance practices; Deep understanding of maqasid al-Shari’ah; Sufficient understanding of the issue and problem posed; A person with good reputation and of good Islamic character. islamic financial services board act 2002 An Act to enable Bank Negara Malaysia to become a member of the Islamic Financial Services Board by signing and accepting the Agreement establishing the Board and to confer certain powers, immunities and privileges upon the Board … This matter is also crucial in that the development of the industry has resulted in a transformation in Shari’ah advisory services. Thus, Shari’ah scholars need to learn and have sufficient understanding of legal jargon or, if they don’t, to seek assistance in reading those documents and only approve them after being satisfied that they are in line with Shari’ah requirements and clearly describe the transaction that ought to take place. Their observance will further lead to the continuous excellence of business performance and corporate accountability. The neutrality of certain taxes for a certain period in certain jurisdictions to institutions offering Islamic finance services is one of the key elements to the further development of Islamic finance industries. *҈(9���T(x�ٝSD�j���,PߒWWX���A�M��R�0���o�B����&!��\��$4��e] Therefore, it is timely to consider the establishment of such a dedicated and professional body for Shari’ah advisors. In addition, that will assist judges in understanding the transactions and providing just resolution to the parties. Existence of such provision is highly desirable. ��u��$\. Among which of his papers that have been published are Roles & Responsibilities of Shari’a Scholars in Shari’a Advisory Services; The Role of the Shariah Supervision, Shariah Governance; Liquidity Management in Islamic Financial Institutions (Arabic); Shariah Governance from Shariah Perspective and its application and The Shariah Objectives (Maqasid) in Contemporary Sciences. However, apart from those guidelines, Shari’ah advisors may assist Islamic finance institutions and the industry in other matters consistent with their competence and capability that are relevant to the growth of the industry. He is a registered Shariah Advisor for Islamic Securities with the Securities Commission of Malaysia and has acted as Shariah advisor in the issuance of several sukuks. As the world’s Muslim population increases, the demand for Islamic financial firms and products is […] The FCA Handbook contains the complete record of FCA Legal Instruments and presents changes made in a single, consolidated view. (Signed) Kofi A. Annan Secretary-General In fact, the existence of such bodies in other professions, such as the Bar Council, the Medical Association and others, has assisted in ensuring that the integrity of such professions is maintained. As a matter of fact, in certain instances, experts from other relevant fields, such as finance, risk management, economics or law, are invited to Shari’ah board meetings to provide better understanding to the Shari’ah boards on matters related to their fields related to the issue under discussion. Century at IIUM on 12th August 2008 directors therefore have a collective responsibility manage! From time to market for financial Services Authority the stakeholders ’ advocate Shari... 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