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IFSB to tighten scrutiny of Islamic finance institutions

 

December 6, 2013

 

The Islamic Financial Services Board (IFSB), one of the chief standard-setting bodies for Islamic finance, is revising guidelines to supervise Islamic finance institutions around the world, in an attempt to tighten regulatory oversight of industry practices. IFSB’s guidelines are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries. The guidelines are in conformity with Pillar 2 of the Basel Accord and expands IFSB’s original 2007 document, known as IFSB-5, to include areas such as regulatory capital, corporate governance, stress testing, securitisation exposures, liquidity, concentration and counterparty risk. The move by IFSB points towards the global trend to tighten regulation of conventional financial markets. In the past year, the IFSB has issued separate guidelines on liquidity risk management and stress testing, while currently reviewing a draft on capital adequacy. The revision provides more detailed guidance on areas such as Islamic windows, a practice which allows conventional banks to offer Islamic financial services provided that clients' money is segregated from the rest of the bank. Islamic windows are widely used in the industry but some regulators have struggled to cope with monitoring their risks and the complexity of financial reporting. The final version is scheduled to be published in April of next year.

 

Shambo Dey

 
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