BNM Sees Continuous Progress In Shariah Compliance Risk Culture

KUALA LUMPUR, March 27 (Bernama) -- Bank Negara Malaysia (BNM) or Central Bank of Malaysia expects continuous progress in evolving a strong Shariah compliance risk culture that is well-integrated and self-reinforcing within the Islamic financial institutions (IFIs). In its Financial Stability and Payment Systems Report 2018, the central bank said this would in turn provide the critical foundations for further growth and innovation in the Islamic finance industry, as well as the overall domestic financial stability. In addition, the adoption of Value-Based Intermediation (VBI) will also further sharpen the focus of IFIs in ensuring their products, services and practices deliver a positive and sustainable impact on economy, community and environment. “An increased focus on impact-driven strategies, supported by strong governance is expected to embedded within and well-integrated into the risk management practices, and product innovation strategies of IFIs,” it said. According to BNM, the development of the VBI scorecard and disclosure practice had enable stakeholders to better assess an institutions’ fulfilment of the basic tenets of Shariah. “This, as such, ensures that IFIs meet the overarching objectives of Maqasih Shariah, which are to preserve and advance the common interest of society at large, preventing harm and maximising benefits. “This further strengthen the accountability, transparency and integrity of IFIs,” it said. The central bank also reported that through regulatory framework and supervision, there are increasing efforts by IFIs to strengthen their Shariah compliance risk culture. Based on an observation, it said responsibilities for Shariah compliance and risk management are increasingly devolved to business units and employees, to mitigate Shariah non-compliance risks. Meanwhile, to ensure full practices in all aspects of business, most IFIs have also adopted penalty and reward systems that relate performance measures to Shariah expectations. “Greater emphasis has been directed by IFIs at building strong foundations in Shariah knowledge and applications within the workforce. “Strengthened recruitment practices and higher investment in training and development have been observed,” BNM said. It added that increased accountability of the Shariah committees has also encouraged the up-skilling of scholars appointed, especially in areas of business operations and industry practices. Currently, there are more than 150 local and international qualified scholars appointed as Shariah committee members at 55 IFIs. Since 2012, the central bank has issued 14 Shariah Standards and Operational Requirements, which give effect to rulings by the Shariah Advisory Council (SAC) and serve to promote the effective management of risks in Islamic financial business. BNM said the upcoming revision to the Shariah Governance Framework (SGF) will further strengthen Shariah governance implementations within institutions. The framework outlines specific expectations for Shariah considerations to be more closely integrated with the business and risk strategies of IFIs. It further clarifies the roles, responsibilities and accountability of the board, Shariah Committee and key organs involved in instituting a robust Shariah compliance risk culture. -- BERNAMA