The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) held the 25^th meeting of its Governance and Ethics Board (AGEB / the board) on Tuesday and Wednesday, 17 and 18 May 2022, via video conference.

The board primarily discussed the exposure draft of the governance standard on the development and governance of Shari’ah compliant benchmark rates. The proposed standard aims to provide principles for the need, development, suitability criteria for and use of benchmark rates for Islamic financial transactions and structures, in a manner that these rates are transparent and Shari’ah compliant and can provide alternatives for LIBOR and other conventional benchmark rates, including risk free rates (RFRs). The board reviewed the said exposure draft, discussed its conceptual issues and approved the same in principle with specific directions to the secretariat to incorporate the required changes. It further advised the secretariat to seek the comments of the Shari’ah board’s respective committee, before issuing the exposure draft for public comments.

The meeting’s agenda also included a review and discussion on the way forward with regards to the exposure draft of the governance standard for institutional framework for implementation of code of ethics. The board further elaborated on the progress of the exposure draft of governance standard on management of investment accounts.

The Chairman of the AGEB, Mr. Farrukh Raza, stated: “I would like to thank all the members, the secretariat, as well as, the relevant working group members for their efforts, dedication and hard work towards AAOIFI’s cause, despite all their other commitments”.  He added: “There is no doubt that developing alternative benchmark rates involves some practical challenges related to transition and adoption. However, as a starting point, the board felt the need to provide the minimum characteristics of a Shari’ah compliant benchmark rate. I am optimistic that having such requirements in place will improve the Shari’ah governance by enhancing the existing practices to the best of interest of the Islamic finance industry”.

On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “this governance standard on Shari’ah compliant benchmark rates is a project that has been envisaged since the inception of the Islamic finance industry. Still there is a long way to go, but this is an important step towards a very noble goal. The future phases of the project will include the identification and testing of the suitable models and support for their implementation in the different markets”. He added: “I would like to thank the working group, the consultant and the secretariat team, as well as, the project sponsors without whose support we would not have been able to reach this far”.

It is important to mention that AAOIFI in collaboration with IFSB and IFM held a roundtable during last January on alternative benchmark rate to discuss the issues and challenges for Islamic finance in adopting alternative benchmark rate. A series of roundtables also to be conducted shortly to discuss and deliberate further on this significant topic.