Reporting of Shariah Non-Compliance Events: The Case of Some Islamic Financial Institutions in Malaysia
January 31st, 2020 |
Shariah non-compliance (SNC) refers to the failure of Islamic financial institutions (IFIs), particularly Islamic banks and takaful operators, to comply with the Shariah resolutions issued by their respective Shariah committees and/or the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM). SNC falls under the framework of operational risk as SNC risks arise from insufficient or failed internal processes and procedures in the system or the errors of people conducting those procedures. SNC incidences may expose IFIs to unfortunate implications. If no proper remedial actions are taken, such incidents might breach the Islamic Financial Services Act (IFSA) 2013, exposing the responsible persons to fines and/or imprisonment and the institution to fines and/or revocation of its license, as outlined in Section 28 (5). This article briefly highlights some policies and guidelines for mitigating SNC risks, issued by Bank Negara Malaysia (BNM) in its capacity as the regulator. It then explains how some IFIs in Malaysia have complied with those guidelines in reporting their SNC incidents.