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The IFSB Council Adopts Three (3) New Standards

Date posted: 15 December 2022

15 December 2022, Islamabad, Pakistan - The Council of the Islamic Financial Services Board (IFSB) has adopted three new standards during its 41^st Meeting held on 15 December in Islamabad, Pakistan hosted by the State Bank of Pakistan (SBP) being the Chairman of the IFSB Council 2022.

The three (3) new standards are:

• GN-8: Guidance Note on Deepening the Islamic Capital Markets;
• IFSB-27: Core Principles for Islamic Finance Regulation (Takāful Segment); and
• IFSB-28: Revised Solvency Requirements for Takāful / Retakāful Undertakings.

GN-8: Guidance Note on Deepening the Islamic Capital Markets

The Guidance Note (GN) seeks to promote financial stability through deep and liquid Islamic financial systems with diverse instruments that will help enhance countries’ resilience to shocks, and in turn also support the resilience of other parts of the Islamic financial services industry by providing a wider range of investments with better price discovery. In this regard, the GN aims to provide guidance and highlight best practices on developing and deepening the Islamic capital markets. Specifically, it seeks to:

• Provide international best practices in developing and promoting the growth of Islamic capital markets 
• Provide guidance on deepening liquidity in the Islamic capital markets 
• Provide guidance on strengthening regulatory frameworks and stability of Islamic capital markets
• Promote the harmonisation of practices across Islamic capital markets

The GN identifies the current gaps and challenges in the development of Islamic capital markets based on a survey of IFSB members, as well as comments and inputs from public consultation and an expert roundtable.

The GN provides thirteen (13) recommendations on best practices for the development and deepening of Islamic capital markets, addressing the issues and gaps that were identified by IFSB members. The recommendations are designed to provide a list of potential areas for consideration, in line with domestic regulatory frameworks and policy approaches for Islamic finance development. 

IFSB-27: Core Principles for Islamic Finance Regulation (Takāful Segment)

This standard provides a set of Takāful Core Principles (TCPs), closely aligned with the ICPs (as adopted in November 2019), but with additions where necessary to reflect the application of Sharī’ah principles in takāful. The aim is to provide an international benchmark standard to promote a sound regulatory and supervisory system, as well as to maintain a fair, safe and stable takāful sector. This is for the benefit and protection of the interests of takāful participants, beneficiaries and claimants, as well as contributing to the stability of the Islamic financial system. Ultimately, the standard intends to achieve the following objectives:

• To provide an appropriate international standard for sound regulatory and supervisory practices specifically for the takāful sector;
• To enable policymakers and supervisors to self-assess the level of observance of principles and standards in the regulations;
• To identify areas for improvement and guide development of reform agendas and responses to emerging issues; and
• To provide a basis for peer review enabling objective external assessment by specialised bodies.

Core Principles for regulation of the financial sector have become standard tools to guide Regulatory and Supervisory Authorities (RSAs) in developing their regulatory regimes and practices. They also serve as the basis for regulatory authorities or external parties such as multilateral agencies to assess the strength and effectiveness of regulation and supervision in a jurisdiction. This standard intends to complement the IAIS Insurance Core Principles (November 2019) to address areas that either do not deal, or deal inadequately, with the specificities of Islamic finance.

The IFSB envisages that the Core Principles for Islamic Finance Regulation (Takāful Segment) (CPIFR-Takāful) will be used by jurisdictions as a benchmark for assessing the quality of their regulatory and supervisory systems, and for identifying future work to achieve a baseline level of sound regulations and practices for takāful. Furthermore, the Core Principle may also assist IFSB member jurisdictions in: (a) self-assessment; (b) financial sector assessment programme (FSAP) by the International Monetary Fund (IMF) and the World Bank; (c) reviews conducted by private third parties; and (d) peer reviews conducted, for instance, within regional groupings of takāful sector RSAs.

IFSB-28: Revised Solvency Requirements for Takāful /Retakāful Undertakings

The Revised Solvency Requirements for Takāful /Retakāful Undertakings aims to achieve the following objectives:

• To protect the interests of takāful participants by setting a high probability that a TU would be able to meet all its contractual obligations and commitments;
• To encourage early warning systems permitting proportionate supervisory intervention and corrective action, and avoiding procyclical effects; and
• To foster confidence among the general public – in particular, takāful participants – in the financial stability of the takāful sector.

The standard applies to both TUs and retakāful undertakings, whether operating under general, family or composite licences. It is applicable also, mutatis mutandis, to takāful “window” operations where such operations exist. Regulatory and supervisory authorities may wish to apply the provisions of this standard in a modified manner to TUs providing microtakāful cover (to facilitate the provision of Shari’ah-compliant cover to facilitate financial inclusion and other related objectives), and other types of business including branches, captives subject always to the aim of protecting financial stability and managing risk to takāful participants.

The softcopies of GN-8, IFSB-27 and IFSB-28 will be available on the IFSB website, www.ifsb.org in both the English and Arabic languages in due course.