Regulation, Supervision and Governance

Among the features that distinguish the Islamic financial system from the conventional system are the regulations that govern them as well as the governance mechanisms that they adopt. While conventional institutions have been established and governed by secular, man-made laws and regulations (whether under the civil law or common law system), IFIs, while still expected to conform to the same existing man-made laws and regulations as their conventional counterparts, must also adhere to the divine rules and principles in the form of a body of laws known as the Shari'ah. For further details see: ISRA, Islamic Financial System: Principles and Operations.

Development


Standards

The BCBS, established by the Central Bank Governors of the Group of Ten (G-10) countries at the end of 1974, provides a forum for regular co-operation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues and approaches and techniques, with a view to promoting common understanding. The BCBS is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on Cross-Border Banking Supervision. Following the 2007-2009 global financial crisis, the membership of the BCBS has been expanded to the G-20 countries. For further details see: ISRA, Islamic Financial System; Principles and Operations.

The International Organisation of Securities Commissions (IOSCOs) is recognised as the world’s most important international co-operative forum for securities regulatory agencies. The organisation’s wide membership regulates more than 90% of the world’s securities markets. As the leading international policy forum for securities regulators, the IOSCO plays a key role in setting international standards for securities regulation, identifying issues affecting global markets, and making recommendations in meeting those challenges. For further details see: ISRA, Islamic Financial System; Principles and Operations.

International Association of Insurance Supervisors (IAIS); Established in 1994, the IAIS represents insurance regulators and supervisors of some 190 jurisdictions in nearly 140 countries. Collectively, in terms of global market share of its members, it constitutes 97% of the world’s insurance premiums. It also has more than 120 observers. For further details see: ISRA, Islamic Financial System; Principles and Operations.

The Islamic Financial Services Board (hereafter referred to as IFSB), which is based in Kuala Lumpur, was established on the 3rd of November, 2002 and commenced its operations on the 10th of March, 2003. IFSB is an international standard setting body of regulatory and supervisory agencies that aims at ensuring the stability and soundness of the Islamic finance industry by issuing prudential global standards and guiding principles for the industry, including the banking, capital markets and insurance sectors. It is also active in conducting research on industry-related issues, as well as organizing roundtables, seminars and conferences for regulators and industry stakeholders. There are 195 members in IFSB comprising 52 regulatory and supervisory authorities, six international inter-governmental organisations, and 137 market players, professional firms and industry associations operating in 40 jurisdictions. For further details, see: ISRA Research Paper; Institutions Supporting the Standardisation Process in Islamic Finance (IRP 29)

The Accounting and Auditing Organisation for Islamic Financial Institutions (hereafter referred to as AAOIFI) was established on the 26th of February, 1990 in Algiers as per the Agreement of Association signed by Islamic financial institutions and was later registered on the 27th of March, 1991 in Bahrain as an international autonomous non-profit corporate body. AAOIFI is supported by institutional members (200 members from 45 countries, so far) including central banks, Islamic financial institutions, and other participants from the international Islamic banking and finance industry worldwide. For further details' see ISRA Research Paper; Institutions Supporting the Standardisation Process in Islamic Finance (IRP 29)

عقد الصرف الآجل

Hisbah


Rating


Corporate Governance

The term CSR has been broadly used to refer to a firm’s social obligations discharged on a voluntary basis. The definition of CSR by the European Commission (EC) is: “A concept whereby companies integrate social and environmental concern in their business operation and in their interaction with their stakeholder on a voluntary basis” (EC, 2001, p. 6). Unlike the definition by the EC which is very narrow, the definition of CSR by the World Business Council for Sustainable Development (WBCSD) extends the framework by not limiting it to voluntary forms of CSR. The WBCSD defines CSR as “the commitment of businesses to contribute to sustainable economic development, working with employees, their families and local community and society at large to improve their quality of life” (WBCSD, 2002, p. 6). In the context of IFIs, AAOIFI has issued specific standards of CSR known as Governance Standards No. 7: Corporate Social Responsibility, Conduct and Disclosure for IFIs. For further details see: ISRA, Islamic Financial System; Principles and Operations.


Can an Islamic Bank Fund Recreational Activities for Its Workers Using Depositor or Shareholder Funds?

Legal System

This system is developed from a set of traditional laws first brought together in England around the 12th century. The name derives from the fact that it was one set of laws “common” to the whole kingdom, rather than different sets of laws used by individual 
communities or tribes. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Can a Bank Seek Damages from a Purchase Orderer Who Breaks His Promise to Buy?
Application Of Man-Made Laws In Islamic Finance
Can an Islamic Entity Buy Real Estate in a Non-Muslim Country if a Tenant Has a Long-Term Lease That Allows It to Sell Alcohol?
What Is the Rule When the Law of a Country Contradicts the Shari‘ah; e.g., When the Law Imposes Maintenance Costs on the Lessee?

Although the Shari'ah is described as “Islamic Law”, its boundaries go beyond the limited horizons of jurisprudence. Thus, the Shari'ah is a set of norms, values and laws that governs the Islamic way of life. In other words, the Shari'ah governs all aspects of
Islam, including faith, worship, economic, social, political and cultural aspects of Islamic societies. For further details see: ISRA, Islamic Financial System; Principles and Operations.

Can a Bank Seek Damages from a Purchase Orderer Who Breaks His Promise to Buy?
فتح حساب مشترك بالتضامن بين طرفين تجمعهم علاقة نسب
What Is the Rule When the Law of a Country Contradicts the Shari‘ah; e.g., When the Law Imposes Maintenance Costs on the Lessee?

Accounting and Financial Reporting


Accounting Arrangements for Recording Collection of Doubtful Debts
Is It Permissible to Record and Distribute the Profits According to the Years of Payment in Accord with the Precise Rules of Accounting?
How Does the Bank Record the Profits of a Delayed-Payment Murabahah Sale?
مشروعية تداول العملات في عمليات الصرف قبل تقييدها حقيقة في الحساب
توزيع أرباح الصكوك في أثناء فترة عمل المشروع وقبل الفراغ منه
When Does an Agent Record the Profit from Murabahah on Behalf of His Principal?
When the Purchase Undertaker Is a Distribution Agent for the Exporter
احتساب نتائج المشاركة
If the Bank Drops the Outstanding Balance Due on a Car Destroyed in a Traffic Accident, Does the Buyer Have a Right to Ask for the Insurance Compensation?
Charges for Expenses of an Offering
Business Expenses in Musharakah based on Percentage of Capital
Selling Goods Recorded as Accounts Receivable before the Invoice is Settled
Can a Muslim Work as Visiting Specialist in a Commercial Corporation Involved in Usurious Transactions?
an Islamic Bank “Loan” Employees to Another Institution When the Cost of Their Salaries Brings No Direct Benefit to the Bank’s Shareholders?
Are Operational Leases and Finance Leases Both Considered Valid Lease Agreements?
Is it Shari‘ah Compliant to Make an Accounting Distinction between Prices of Short-Term and Long-Term Corporate Assets?
When Should Profits Earned Be Credited to the Accounts of Investment Account Holders?
Is It Allowed to Distribute Mudarabah Profits on the Basis of Gross Profits Rather Than Net Profits?
What Principle Should Be Used to Calculate Banking Sector Profit?
How to Treat a Customer Who Withdraws his Deposit from an Unrestricted Investment Account before the Agreed Time?
Is It Allowed to Buy Shares of a Conventional Insurance Company in Order to Convert It into a Cooperative Insurance Company?
What is the Starting Time in Calculating Zakah for an Amount Added to a Bank’s Reserve Fund and for the Issuance Premium?
Is it Permissible to Distribute the Profits before the Endorsement of the General Assembly?

Ombudsman


Money Laundering


Others


Islamic Financial System ©

 

 


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