Sharīʿah Non-compliance Classification and the Materiality Parameter: The Approaches Adopted by Prudential BSN Takaful Berhad

Author: Yusaini Binti Yusof & Atiqah Binti Mohd Ali
Pages: 56


Since 2013, Prudential BSN Takaful Berhad (PruBSN) has been developing classifications of Sharīʿah non-compliance (SNC) to assist in the decision-making process of PruBSN’s Shariah Committee (PruBSN’s SC). The application and interpretation of the relevant Sharīʿah requirements are needed to determine whether a particular issue is a potential SNC to be tabled to PruBSN’s SC and whether it should eventually be classified as an actual SNC. PruBSN appreciates that all surrounding factors of a particular incident should be analysed on a case-to-case basis. Despite that, some level of consistency of thought and uniformity of the grounds for the decision are required. In addition to ensuring consistency in decision making, having clear classifications of SNC expedites the deliberation process. The ability to map a particular incident onto the established SNC classifications and the availability of a structured process enables the officer(s) handling the Sharīʿah risk management function to gather sufficient relevant facts to ensure comprehensive and effective deliberation in PruBSN’s SC meeting.

PruBSN developed the SNC Reporting Operational Manual in 2013 and has continued to improve it from time to time since then. The latest development in terms of methodology is the materiality parameter. In terms of procedure, PruBSN has applied a systematic information-gathering procedure via the completion of the ‘SNC checklist’, which has proven very helpful in facilitating the PruBSN SC’s deliberation and decision-making process. PruBSN has zero tolerance towards SNC regardless of its materiality. The application of the materiality assessment should not be considered as a development towards leniency. With the enhancement of the Sharīʿah risk management function, the level of disclosure to PruBSN’s SC on incidences (which include operational lapses) has been further strengthened.
The objectives of this paper are as follows:
1. To briefly explain the SNC classifications based on existing broad parameters stipulated under the PruBSN SNC Operational Manual;
2. Particularly for operational lapses, to explain the enhancement in the SNC materiality assessment methodology applied by PruBSN whereby both qualitative and quantitative perspectives have been taken into account; and
3. To share practical processes applied in PruBSN when handling SNC incidences, whether potential or actual.

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