AAOIFI Publishes Exposure Draft on Sukuk Governance and Invites Opinion from Islamic Finance Industry

AAOIFI Governance and Ethics Board (AGEB) in its 9th meeting held in Bahrain on 29-30 Safar 1440H, corresponding to the 7-8 November 2018 approved the issuance of exposure draft (Exposure Draft G2/2018) on “Sukuk Governance ”.

Sukuk is a widely used instrument for investment purposes by sovereigns, corporates and IFIs. Various regulators sensing the need and necessity to manage this instrument have issued regulations to govern the overall cycle of Sukuk investments, however there are observable disparities in the approach and coverage areas. Considering the situation, it was decided to develop a global standard in this area so that the practices in this respect may be harmonized, standardized and improved within the industry.

The aim of this standard is to introduce detailed guidelines on Sukuk governance by providing a comprehensive framework for managing Sukuk issuance as well as management during investment and maturity/termination phases. It aims to provide guidance to IFIs and corporates worldwide on this important aspect of governance, and to harmonize global regulatory practices in this respect.

This standard  is part of a comprehensive  Sukuk project that was initiated by AAOIFI  in 2015 to revise the standards on Sukuk in line with the developments in the field over the last two decades. In addition to the Shari’ah standard on Sukuk (SS 17), there are three Financial Accounting Standards (FASs) covering Sukuk, namely Sukuk Issuances (FAS 29), Sukuk in the Books of  Issuer (FAS 34), and the revised FAS 25 “Investment in Sukuk, Shares and Similar  Instruments” .

The  Deputy Chairman of the Board, Sh. Esam Ishaq commented, “Sukuk has emerged as a leading investment instrument in Islamic finance. Its significance is felt both in corporate as well as sovereign sectors. While this instrument has seen positive coverage due to its phenomenal growth there have been cases and instances when weaknesses in various areas related to its governance, legality and Shari’ah compliance were voiced and came under spotlight. As this asset class has successfully established itself as a key player in Islamic financial markets it is timely to look at various elements of their overall corporate governance, which require more clarity and robustness with Shari’ah and best governance practices.”.

The public hearings for the exposure draft will be held in the upcoming months in different parts of the world – to obtain industry feedback. Futher details with respect to dates and venues, will be announced shortly via the AAOIFI website. Comments on the exposure draft should be directed no later than 30 Janaury 2019 to [email protected] All comments and suggestions of the public hearings as well as written comments will be presented to the AGEB to discuss and to make  the necessary changes.

The exposure draft can be accessed BY CLICKING HERE