The IFSB Council adopts three documents in effort to facilitate the soundness and stability of the Islamic financial services industry
Available at: http://www.ifsb.org/preess_full.php?id=157&submit=more
Kuala Lumpur, 14th December 2010 – In its 17th meeting in Jeddah, Kingdom of Saudi Arabia today, the Council of the Islamic Financial Services Board (IFSB) resolved to approve three documents that aim to further facilitate efforts towards enhancing the soundness and stability of the Islamic financial services industry. The three documents are:
1. Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings;
2. Guidance Note in Connection with the Risk Management and Capital Adequacy Standards: Commodity Murābahah Transactions (CMT); and
3. Guidance Note on the Practice of Smoothing the Profits Payout to Investment Account Holders.
The 17th Meeting of the IFSB Council was chaired by H.E. Dr. Sabir Mohamed Hassan, Governor of the Central Bank of Sudan. The Council Meeting, hosted by the Islamic Development Bank, was followed by the Second Islamic Financial Stability Forum, which was attended by Governors of central banks and representatives of supervisory and regulatory authorities from among the IFSB member organisations.
1. Solvency Requirements for Takāful Undertakings (IFSB-11)
IFSB-11 is concerned with the ability of Takāful undertakings to meet regulatory solvency requirements in a manner consistent with Sharī`ah principles, which include a separation between the functions of mutual protection against specified risks by means of risk pooling in Takāful funds and the management of the underwriting process and fund investments by the Takāful operator. IFSB-11 outlines seven Key Principles, which complement the relevant solvency standards and guidelines developed by international standard-setting bodies. As such, IFSB-11 aims to reinforce the capabilities of Takāful undertakings in their management of risks on behalf of Takāful participants.
2. Guidance Note in Connection with the Risk Management and Capital Adequacy Standards: Commodity Murābahah Transactions (GN-2)
GN-2 aims to highlight the risks associated with Commodity Murābahah Transactions and to guide supervisory authorities in their assessment of their implications with regard to the regulatory capital requirements of institutions offering Islamic financial services (IIFS). In addressing these risk management and capital adequacy issues, the document complements the existing IFSB Guiding Principles of Risk Management for IIFS (IFSB-1) and IFSB Capital Adequacy Standard (IFSB-2), both of which were issued in 2005.
3. Guidance Note on the Practice of Smoothing the Profits Payouts to Investment Account Holders (GN-3)
GN-3 draws attention to the practice of smoothing the profits payouts to investment account holders by IIFS by highlighting a number of related prudential concerns with respect to corporate governance, transparency, capital adequacy and harmonisation of such practices. The document provides a framework and a number of best practices which will guide supervisory authorities in their evaluation and standardisation of profit payout smoothing practices in their jurisdictions. GN-3 complements a number of IFSB standards and guiding principles, including IFSB-1, IFSB-2, Guiding Principles on Corporate Governance (IFSB-3) and Disclosures to Promote Transparency and Market Discipline for IIFS (IFSB-4).