Principles of Islamic banking and finance/PIBF202/Structure and operations/Islamic Financial Services Board (IFSB)

From WikiEducator
Jump to: navigation, search

In the last section we looked at the role of AAOIFI in the growth of Islamic financial industry. About a decade after its establishment another important institution was created in Malaysia to complement the work of AAOIFI. The motive behind this could also to put Malaysia in the fore front of Islamic finance field. Malaysia, the host country of the IFSB, has enacted a law known as the Islamic Financial Services Board Act 2002, which gives the IFSB the immunities and privileges that are usually granted to international organisations and diplomatic missions. (IFSB), which is based in Kuala Lumpur, was officially inaugurated on 3rd November 2002 and started operations on 10th March 2003.[1]

IFSB

According to its official website,

" ..... It serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. In advancing this mission, the IFSB promotes the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Sharî'ah principles, and recommend them for adoption.

To this end, the work of the IFSB complements that of the Basel Committee on Banking Supervision, International Organisation of Securities Commissions and the International Association of Insurance Supervisors.

As at April 2017, the 183 members of the IFSB comprise 70 regulatory and supervisory authorities, seven international inter-governmental organisations, and 106 market players (financial institutions, professional firms, industry associations and stock exchanges) operating in 57 jurisdictions."

Unlike AAOIFI, IFSB has focused its efforts on non-accounting issues such as implementation of BASIL guidelines on issues related to capital adequacy, risk management and corporate governance. The complete list of standards that have been developed so far could be found at their website. [2]. Many of the BASIL guidelines are adopted by IFSB unchanged. However, as the products and working of Islamic banks are different in several ways from their counterparts, IFSB has revised some of the BASIL provisions and also introduced new regulations that are related to shari'ah compliance, managing rate of return risk on equity investments, and maintenance of reserve for equalizing profit rates to investment accounts holders. As investment accounts of Islamic banks do not guarantee a fixed return, IFSB has different view on capital adequacy ratio for Islamic banks.

The producer to develop a particular standard is quite elaborate and rigorous as depicted in the diagram posted on their website. [3]

IFSB & AAOIFI: COMPLEMENTARY MANDATES [4]

AAOIFI's Mandate

1. Prudential standard setter across three sectors – Islamic banking, Takaful (Islamic insurance) and Islamic Capital Market

2. Facilitate Implementation of Standards and Capacity Building: Workshops, Technical Assistance and Annual Implementation Surveys

3. Promote Cross Border Cooperation on stability and resilience issues: Publications and awareness building

IFSB's Mandate

1. Development of accounting and auditing Standards relevant to Islamic Finance activities

2. Dissemination of accounting and auditing standards through trainings, seminars and certificate programmes

3. Prepare Shari’ah standards on Islamic finance products

IFSB & AAOIFI have issued complementary standards on transparency, disclosure and consumer protection for risk sharing investment account holders Both IFSB & AAOIFI are members of The International Accounting Standards Board's (IASB) Consultative Advisory Group on Islamic Finance.


References

  1. ↑ IFSB Official website http://www.ifsb.org/background.php
  2. ↑ http://www.ifsb.org/background.php
  3. ↑ http://www.ifsb.org/standard.php
  4. ↑ Ahmed, J. (2017) The Islamic Financial Services Board: Setting Standards for Islamic Finance, Presentation at The IAASB Consultative Advisory Group Meeting held on 7-8 March 2017, in New York, USA, p. 9. available at https://www.iaasb.org/system/files/meetings/files/IFSB-IAASB-CAG-Presentation.pdf retrieved on May 4, 2017.
Retrieved from "https://wikieducator.org/index.php?title=Principles_of_Islamic_banking_and_finance/PIBF202/Structure_and_operations/Islamic_Financial_Services_Board_(IFSB)&oldid=1029823"