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15th IFSB Summit 2021 - Pre-Summit Event 3: Innovation Forum - Digital Transformation of the Islamic Finance Industry: Industry Case Studies| The Ritz-Carlton, Jeddah | Kingdom of Saudi Arabia

Date posted: 9 November 2021

Date : 9 November 2021
Event / Venue : 15th IFSB Summit 2021 - Pre-Summit Event 3: Innovation Forum - Digital Transformation of the Islamic Finance Industry: Industry Case Studies| The Ritz-Carlton, Jeddah | Kingdom of Saudi Arabia
Speaker : Dr. Bello Lawal Danbatta, Secretary-General, Islamic Financial Services Board

Assalamu’alaykum wrt wbt (السلام عليكم ورحمة الله وبركاته) and a very good morning,

It gives me a great pleasure and honour to welcome all of you today to the 3rd IFSB Innovation Forum in this beautiful city of Jeddah, Saudi Arabia, one of the leading jurisdictions in Islamic finance. I would like to express my special thanks and appreciation to His Excellency, Dr. Fahad Abdullah Al Mubarak, Governor, Saudi Central Bank (SAMA) and his team for hosting this event alongside the 15th IFSB Summit and welcoming us so warmly.

I am grateful to all the governors and senior officials of regulatory and supervisory authorities, officials representing international organisations, heads of financial institutions as well as other distinguished guests and speakers, for being here with us today.

Purpose of the Innovation Forum

Your Excellencies, Distinguished guests, Ladies and Gentlemen,

The pre-Summit events are an important platform for IFSB members and non-members to come together and exchange ideas and share their Islamic finance initiatives and experiences in supporting the growth of a sound and stable Islamic financial services industry. It is part of the IFSB’s mandate to create a platform for cooperation among its members that will promote the development of Islamic finance and strengthen the global resilience of the Islamic finance industry. 

The IFSB Innovation Forum is a biennial event that aims to cultivate innovative thinking and dialogue in the Islamic financial services industry (IFSI), to foster the development of an efficient, competitive, sound and innovative IFSI in a rapidly changing global environment. The focus of the Forum is on technological innovations in the IFSI that create a competitive edge for the Islamic financial services industry in the digital era and its contribution to furthering the growth of Islamic finance, while also identifying potential regulatory and supervisory considerations arising from such practices.

The theme of this Forum complements the overall theme of the IFSB Summit this year, and is intended to provide an opportunity for the industry to share their leading strategies, initiatives and case studies on the digital transformation of the Islamic finance sector. 

The pandemic has accelerated digitalisation of the financial sector…

Your Excellencies, Distinguished guests, Ladies and Gentlemen,

Recent global events have resulted in a vastly accelerated pace of change and transformation in the financial services industry, spurred by the need for digital connectivity to replace physical interactions between consumers and financial service providers. Globally, the pandemic has hastened the shift to digital payments and increased the share of consumers using digital channels and products. It has consequently presented us with a rapidly changing landscape with new entrants, new business models and a race to develop the necessary capabilities, and in many cases, a potential for a fundamental disruption to traditional financial services firms and sectors. 

In this context, the future of the Islamic financial services industry depends on the ability to adapt and keep up with latest developments and understand the value of innovation, particularly in challenging times. It is necessary for the Islamic financial services industry to adapt to external factors, such as shifting customer preferences and competition from fintech and big tech market entrants, as well as internal factors by harnessing the potential of digital technologies.

Innovation in the IFSI has the capacity to bring about many benefits for consumers and society in general and opportunities to better serve the needs of economies. Embracing digital transformation can enhance the ways in which Islamic financial services are offered, with potential for broadening access and inclusion, as well as improving efficiency and cost effectiveness, while providing better choice, value and information to consumers.

Managing the associated risks… 

Your Excellencies, Distinguished guests, Ladies and Gentlemen,

Nonetheless, the pace of change together with the borderless nature of technology, requires an appropriate level of caution to be exercised through appropriate regulatory and supervisory oversight.  The unique challenge for financial sector regulators, is to try to not get in the way of beneficial innovation, while also ensuring that any associated risks are well-managed as well as limiting or preventing those that are detrimental to objective of well-functioning and resilient financial services and markets.

Islamic financial services firms also need to make informed choices about where and how they are going to adapt and make sure that the associated risks are understood, considered, and measured, as they make changes to their processes and business models. This includes, being mindful of associated risks, including the effectiveness execution; cybersecurity and operational resilience; data protection; and importantly, Sharīʻah-compliance.

As part of its mandate as an international standard setting body for the IFSI, the IFSB also aims to keep abreast of the emerging trends brought about by digital transformation to identify the risks these changes present, and in particular, the gaps it presents in the regulation of the Islamic finance sector. This has been a part of the IFSB’s work programme including its research agenda as well as the standards development programme. Recently issued IFSB standards have addressed Islamic finance-specific issues related to the regulation of innovative financial technologies such as Sharīʻah-compliant peer-to-peer (P2P) financing, equity crowdfunding, Sharīʻah-compliant robo-advice, and crypto-assets, among others, with the objective of ensuring that such technologies can be safely adopted in the IFSI under effective regulatory frameworks that maintains the overall resilience of the Islamic financial system while ensuring that the best interests of consumers are protected.

As innovation take us into new territories in the provision of financial services, it presents a need, not only to adapt regulatory frameworks and supervisory practices that take into account the specificities of Islamic finance, but also a need to rethink the scope of regulatory perimeters in the IFSI to take into account the growing diversity of financial service providers and business models. Adapting regulatory frameworks can also present certain trade-offs between different policy goals. To balance such competing policy objectives, it is important for authorities to increase collaboration both at the national level as well as at the international level. Sharing of expertise between national authorities on financial regulation of new entrants and incumbents in the IFSI and the coordination of policy actions across jurisdictions is essential, particularly given the potential for cross-border spillovers such as cybercrime prevention and data governance decisions to mention a few. Collaboration can also help peer-learning between jurisdictions as well as help to establish regulatory consistency, strengthened by implementation of international standards of best practice. 

Concluding remarks…

Your Excellencies, Distinguished guests, Ladies and Gentlemen,

To conclude, we have an opportunity at this Forum today, to enter into dialogue with policymakers and industry players who are leading the way in innovation in the Islamic financial sector.

On that note, I wish you very productive deliberations and discussions that will allow us to generate new insights that will help us realise the objectives of today’s high-level Forum.

Once again, I welcome and thank you all for your participation in the 3rd IFSB Innovation Forum.

Wassalamu alaikum wrt wbt

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