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17 Dec | Friday
The Council of the Islamic Financial Services Board (IFSB) has adopted two new standards
The Council of the Islamic Financial Services Board (IFSB) has adopted two new standards during its 39th Meeting held on 9 December in Abu Dhabi, United Arab Emirates.
 
The two new standards are:
  • IFSB-23: Revised Capital Adequacy Standard for Institutions offering Islamic Financial Services (IIFS) [Banking Segment]; and
  • IFSB-26: Core Principles for Islamic Finance Regulation (Financial Market Infrastructures).
IFSB-23: Revised Capital Adequacy Standard (RCAS)
 
IFSB-23 was developed to align the IFSB’s guidance on capital adequacy for the banking sector with the latest updates to global capital standards, particularly those issued by the Basel Committee on Banking Supervision. The new Standard builds on IFSB-15: Revised Capital Adequacy Standard for Institutions Offering Islamic Financial Services Excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes] (December 2013) and contains enhancements that incorporate global best practices to ensure the provision of a level playing field to IIFS vis-à-vis conventional financial institutions subject to a capital regulatory framework. 
 
The main objectives of the Standard are:
  1. To 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 Islamic financial services industry (IFSI);
  2. To provide an updated framework for regulatory capital components for IIFS, that comply with Sharī`ah rules and principles; 
  3. To review and enhance the capital adequacy requirements concerning various risk exposures related to Shar’iah complaint products and services offered by IIFS; 
  4. To enhance the capital adequacy treatment for IIFS exposures relating to investments in sukūk and securitisation, in line with the current global regulatory standards and the development in the IFSI; 
  5. To delineate guidance on the application of leverage ratio and other macroprudential measures for IIFS; and
  6. To adapt international best practices, as well as current and emerging standards, relating to capital adequacy for IIFS.
  7. The Standard is primarily intended to serve banking institutions offering Islamic financial services. These IIFS include, but are not limited to: fully-fledged Islamic commercial banks; Islamic investment banks/companies; Islamic banking subsidiaries of conventional banks; Islamic banking branches/divisions/units of conventional banks (hereinafter collectively referred to as “Islamic windows”); and such other financial institutions as may be determined by the respective supervisory authority. The application of the Standard by supervisory authorities should be commensurate with the nature, size, complexity and type of products of the IIFS in the jurisdiction. 
IFSB-26: Core Principles for Islamic Finance Regulation (Financial Market Infrastructures)
 
The new IFSB Core Principles Standard ("CPIFRFMI") contains a comprehensive set of 25 core principles that apply to payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively referred to as financial market infrastructures or "FMIs") that undertake Sharīʿah-compliant activities and transactions. The Standard is designed and issued to ensure that the essential infrastructure supporting global Islamic financial markets are robust and effectively address the specificities of Islamic finance and contribute to the stability of the industry. 
 
The new Standard complements the CPSS-IOSCO Principles for Financial Market Infrastructure ("PFMI") (April 2012) and its associated Disclosure Framework and Assessment Methodology (December 2012), and addresses, in particular, those areas in which the existing CPSS-IOSCO Documents either do not deal, or deal inadequately with the specificities of Islamic finance. It also takes into account lessons learned from the COVID-19 pandemic, particularly in areas relating to the operational resilience of FMIs.
 
The Standard intends to achieve the following objectives:
  1. To develop a comprehensive standard for effective regulation, supervision, and oversight of FMIs addressing the specificities relating to Islamic finance; 
  2. to equip RSAs with minimum international benchmarks to ensure safe, transparent, and robust FMIs to preserve financial stability and operational efficiency in Islamic finance jurisdictions; and
  3. to assist the RSAs in assessing the quality of their regulatory framework for their respective FMIs and identifying areas for improvement as an input to their reform agenda.
  4. The IFSB envisages that the CPIFRFMI will be used by jurisdictions as a benchmark for assessing the quality of their regulatory and supervisory systems, and for identifying future work to achieve a baseline level of sound regulations and practices for Islamic FMIs.
The development of CPIFRFMI is intended to promote further integration of Islamic finance with the international architecture for financial stability and operational efficiency, especially in the area of securities clearing and settling, payment, and data recording in the FMIs. Furthermore, the CPIFRFMI may also assist IFSB member jurisdictions in: (a) the International Monetary Fund (IMF) and the World Bank financial sector assessment programme (FSAP); (b) self-assessment; (c) reviews conducted by private third parties; and (d) peer reviews conducted, for instance, within regional groupings of capital market RSAs. 
 
The softcopies of IFSB-23 and IFSB-26 will be available on the IFSB website, www.ifsb.org in both the English and Arabic languages in due course.
 
The 39th meeting of the IFSB Council, hosted by the Central Bank of the United Arab Emirates was held on 9 December 2021 in Abu Dhabi, United Arab Emirates (physical and online). The Council Meeting was chaired by H.E. Khaled Mohamed Balama, Governor of Central Bank of the United Arab Emirates and Chairman of the IFSB for 2021, attended by the Central Bank Governors, Deputy Governors, Heads of regulatory and supervisory authorities, senior representatives from among the Council and Full members of the IFSB, representing 22 countries.

Published on 10 December 2021
source: IFSB
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