The IFSB Council ratifies new standards on capital adequacy and Takaful - IFN

The IFSB Council ratifies new standards on capital adequacy and Takaful

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GLOBAL: Following its 23rd meeting in Qatar yesterday, the IFSB Council has resolved the adoption of two new standards for the Islamic financial services industry. The standard-setting body will incorporate new guidelines pertaining to standards on risk management for Takaful undertakings and standards on revised capital adequacy for Islamic financial institutions excluding Takaful operators and Islamic collective investment schemes (IIFS). The IFSB-14, a document outlining new standards on Takaful, provides guidance in understanding the types of risks that the industry is exposed to as well as a Shariah compliant mechanism for the development of a risk management framework for Takaful undertakings. It highlights potential exposures such as Shariah non-compliance risk, risks arising from segregation of funds and risks relating to the use of re-Takaful. The IFSB-15, a revised and enhanced version of two previous IFSB standards on capital adequacy, assists in the implementation of a capital adequacy framework that will ensure effective coverage of risk exposures for IIFS as well as the allocation of appropriate capital in covering these risks. In compliance with Shariah principles, the paper enumerates relevant features and criterions for high-quality regulatory capital components, including additional Tier 1 and Tier 2. Similarly, it also provides new guidance on macro-prudential tools and more elaborate guidelines on capital adequacy treatment of risk exposures related to Islamic products and services, such as Sukuk, securitization and real estate. The implementation of IFSB-15 by member countries is expected to commence by January 2015. The council meeting also approved the application of the Indonesia Financial Services Authority to join as a full member of the IFSB; and admitted the Central Bank of Libya as an associate member along with four financial institutions (Chase Bank, Export-Import Bank of Malaysia, Bank Muscat and Bank Nizwa) as observer members. In addition, the board further resolved to appoint Mohd Rosli Sabtu, the managing director of Autoriti Monetari Brunei Darussalam, as the chairman of the IFSB; and Agus Martowardojo, the governor of Bank Indonesia, as its deputy chairman.