The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 18th meeting of its Governance and Ethics Board (AGEB / the board) recently, via video conference. The meeting agenda covered two main topics including continuation of the discussion on AGEB’s work plan for the term 2020-2023 and discussing the exposure draft of the standard on Shari’ah decision making (SDM) process.

The board’s strategy in the development of standards takes into consideration both the market needs as well as the long-term best interest of the industry. The members invested considerable time and efforts in choosing themes for the new projects based on the current market trends and in light of the technological advancements in the industry.

Taking into consideration the revolution in the global Islamic finance ecosystem and the recent developments in FinTech with its associated opportunities and risks, the board approved a new comprehensive project on FinTech. The board realizes that a right mix of technology, supported by prudent governance in a dynamic macroeconomic environment will hold the key to sustainable success of the industry.

In addition to the comprehensive project on FinTech, the board also approved the initiation of a standard on the governance mechanism of an alternative benchmark rate as the global pressure surges to find new benchmarks replacing LIBOR. Different countries and jurisdictions are working on their alternatives that may have an impact on those Islamic finance transactions that have been benchmarked to LIBOR previously.

The development of standard on Zakah Institutions governance was put as priority as the board believes that it is necessary to boost confidence of the payers on Zakah institutions. In addition, AAOIFI has issued both Shari’ah and accounting standards covering Zakah. Therefore, there is a need to address the governance aspects of the same.

The board elaborated on various other new projects and approved developing new governance standards with special considerations on Islamic windows, mutual funds, and Takaful. They also discussed the initiation of projects on the governance of sustainable financing as well as SME financing.

The strategy the board adopted in its last term will continue in its current term of working proactively and engaging with industry stakeholders at different levels to ensure that the new standards are developed in line with the actual market needs and in collaboration with the stakeholders

The Chairman of the AGEB, Mr. Farrukh Raza, stated: “The board approved significant projects for the term 2020-2023, assigned the timelines and formed the working groups. These projects are in line with rapid industry developments and will tackle the crucial issues faced by the Islamic finance industry.” He added “the board is keen to ensure the standards meet the actual needs of the industry and address the key concerns as the dynamics change rapidly”.

After completing the review of the work plan, the board discussed the SDM process standard exposure draft, which sets out a comprehensive framework for the SDM process for the Islamic financial institutions (IFIs) and Islamic finance transactions, while complementing the AAOIFI Shari’ah Standard (SS) 29 “Stipulation and Ethics of Fatwa in the Institutional Framework”.

On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “I would like to express my appreciation to all the members for their commitment and continuous efforts to develop various standards and guidelines to the best interest of Islamic finance industry”.