The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held recently its 11th meeting of its Governance and Ethics Board (AGEB) at AAOIFI head office in the Kingdom of Bahrain. The AGEB among other agenda points deliberated upon and in-principle approved the exposure draft on Shari’ah compliance and fiduciary ratings for Islamic financial institutions (GSIFI 10) to be issued.
The AGEB discussed the comments received on the exposure draft of governance standard “Shari’ah compliance and fiduciary ratings for Islamic financial institutions”, including those received during the public hearing sessions and in writing from experts, practitioners, and the industry. The standard provides principle-based guidance on the responsibility, acceptance, process, reporting and quality assurance for such services. Rating agencies are free to develop their own detailed methodologies for such ratings including the rating scales.
A Shari’ah compliant financial institution not only has to demonstrate financial strength and stability, but it is equally important that it follows and is perceived to be compliant with Shari’ah in all its activities and operations and to act as a responsible fiduciary. The stakeholders – including the shareholders, investment account holders, customers, suppliers, employees, regulators and the society at large – have a right to know the level of commitment and seriousness of the IFI in terms of Shari’ah compliance and fiduciary performance. Shari’ah compliance and fiduciary rating are a mechanism that serves this end.
Sheikh Esam Ishaq, Deputy Chairman, AGEB, who chaired the meeting stated, “AAOIFI has held the largest number of public hearings till date on the exposure draft of Shari’ah compliance and fiduciary ratings for Islamic financial institutions. I am hopeful that the global Islamic finance industry will well receive this standard as it provides the means to improve market discipline and enhance the level of transparency in the Islamic finance industry. The Board has decided to keep it as a non-mandatory standard.”
It is worth noting that eight public hearings were conducted for this standard including those held in Bahrain, Malaysia, Oman, Pakistan, Saudi Arabia, Sudan, Turkey, and UAE with a participation of more than 450 industry professionals.
The Board also discussed the exposure draft of the ethics standard. The objective of this standard is to enhance and develop AAOIFI’s code of ethics for the professionals working in the Islamic finance industry.
The next AGEB meeting is scheduled to be held on 10 -11 July 2019.