New developments in interest-free banking
On September 14, the Banking Regulatory and Supervisory Authority (BRSA) published the Communiqué on Compliance with the Principles and Standards of Interest-Free Banking.
The Communiqué regulates principles and procedures for participation banks and development and investment banks to ensure their compliance with the principles and standards of interest-free banking.
Within this scope, these banks will establish an advisory committee. The advisory committee will render its decisions regarding the principles and standards of interest-free banking and their implementation, as well as examine banks’ compliance with these principles and standards.
The advisory committee must its render decisions independently and free from the influence of executives and other related parties.
At least two-thirds of the members of this advisory committee must have (i) undergraduate degrees in theology or similar fields, or a graduate or PhD degree in interest-free finance and (ii) at least three years’ work experience in interest-free finance.
Compliance activities will enable (i) products and services provided, agreements, investments and transactions undertaken; (ii) regulations within the bank, financial statements and activity reports; and (iii) relationship with shareholders and personnel to be in compliance with the principles and standards of interest-free banking and the advisory committee’s resolutions.
Compliance with interest-free banking will be audited by banks’ internal audit units, providing assurance to the bank’s executives, shareholders and other stakeholders in this respect.
Furthermore, banks must inform their clients, sufficiently and effectively, about the products and services, terms of agreements and rights and obligations of the parties with respect to the principles and standards of interest-free banking.
The targets of the Istanbul Financial Center program included turning Turkey into a regional hub for interest-free finance and one of the world’s centers for interest-free banking. The growing demand for interest-free financial services paved the way for new regulations, such as the introduction of takaful insurance. This Communiqué will determine the general standards applicable to all interest-free banking services and ensure monitoring of compliance with these standards.