IFSB to develop standards for Islamic capital markets

Board to boost regulatory consistency

KUALA LUMPUR: The Kuala Lumpur-based Islamic Financial Services Board (IFSB) plans to develop guiding principles for capital markets and insurance, seeking to encourage regulatory consistency across new and established markets, its secretary general said. The new guidelines from the 188-member IFSB, one of the main standard-setting bodies for Islamic finance, will complement existing ones which cover commercial banking.

A wider set of standards could assist the International Monetary Fund which plans to include Islamic finance in its surveillance work, known as the Financial Sector Assessment Program (FSAP).

“Before the FSAP there has to be a set of core principles and that really is the instrument that we feel is going to point the way and facilitate consistency across borders,” IFSB secretary-general Jaseem Ahmed told Reuters. The standards on capital markets and Islamic insurance (takaful) would c mplement regulatory guidance from the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS).

The plans will be submitted to the IFSB’s council in December as part of its second strategic performance plan for 2016-2018, said Ahmed. Such efforts come at a time when Islamic finance is gaining wider prominence as the industry takes a greater share of the financial sector in several majorityMuslim countries.

Islamic finance, which bans interest payments and pure monetary speculation, is now systemically important in 10 countries where Islamic banks hold over 15 percent of banking assets, including Kuwait, Malaysia and Qatar. Countries like Morocco are introducing Islamic finance for the first time, so comprehensive regulatory guidance would aid in convergence between new and mature markets, said Ahmed.

“In the absence of guidelines, practices can develop which are not informed. This is not desirable.” Founded in 2002, the IFSB’s initial efforts have focused on winning a wide membership base, leaving implementation and enforcement to national regulators to decide. Now, however, the IFSB is issuing more detailed guidance in response to the global financial crisis, and a trend towards tightening regulation of conventional financial markets.

This month the IFSB released draft guidelines on Islamic reinsurance and a joint paper with the IAIS on Islamic microinsurance. A study by the IFSB found that there is strong demand among regulators for support to implement its standards, while the degree of implementation is linked to a range of factors. It noted Bahrain as having one of the most detailed consultations for introducing standards, while in Indonesia implementation relies on input from the private sector. In Pakistan the industry is substantially dependent on units of conventional banks known as Islamic windows, while IFSB standards say little about how they should be applied to them. —Reuters