Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) held the second meeting of its Governance and Ethics Board (AGEB) ) recently, over an interval of two days in the Kingdom of Bahrain.

The Board reviewed updates and approved working group compositions including additions and amendments to the work plan for 2016-17 and agreed on the targets for finalization of several projects.

One of the key considerations discussed and approved by the Board was AAOIFI’s proposed policy to collaborate, avoid overlap and contemplate convergence with international organizations and bodies involved in governance standards development especially other infrastructure institutions and standard-setters for the Islamic finance industry. This involves corporate governance, Shari’ah governance and ethical standards. The Board officially authorized the Secretariat to start discussions with such organizations. The Board was of the view that such possible collaboration and convergence will assist regulators to adopt the converged standards without confusion or duplication and will result in improved levels of governance in the industry.

The Board also emphasized on the importance of the steps taken by AAOIFI Secretriat in enhancing the levels of collaboration with the central banks as well as regulatory and supervisory bodies and suggested that the upcoming meetings shall be held in different countries in collaboration with their respective regulators, so that their respective experiences may be shared.

In particular, the Board discussed several topics on its agenda, the most important are:

• The Governance Standard on “Centralized Shari’ah Boards”, as the members discussed the respective preliminary study, which it covers several relevant aspects including the experiences of a number of countries in this context. The Board was appreciative of the fact that several regulators have already set-up Centralized Shari’ah Boards. And it also recommended AAOIFI to incorporate the Centralized Shari’ah Board to the governance framework as an additional part of the Shari’ah governance regime.
• The Board deliberated on the overall governance and ethics framework including the existing, proposed and missing standards / guidelines  in order to promote ideas for revision and amendment. The members identified several improvement opportunities in the overall framework, which will take place over the next few years;
• The Board also reviewed the related basic outline of the external Shari’ah audit standard and guidelines where the main discussion revolved around requirements set by multiple regulatory bodies and how it was cumbersome for smaller institutions to fullfil all of them. The Board agreed to come up with a new standard on this important subject, altogether with the relevant direction in order to avoid extra burden on the institutions, the existing requirements in AAOIFI Shari’ah Review standard and the Auditing Standards shall be reduced appropriately; and
• The Board also advised the overall approach to be taken in respect of the revision of Internal Sahri’ah Audit / Review standard to the working group and Secretariat with specific guidelines.

 The next AGEB meeting is proposed to be held by the end of year 2016.