The IFSB adopts Standards on Islamic Collective Investment Schemes and Sukûk Securitisation
Date posted: 20 February 2009
Kuala Lumpur, February 20, 2009 - The Council of the Islamic Financial Services Board (IFSB) has recently adopted two new standards which are now available for download from the IFSB website -
www.ifsb.org . The two Standards are:
1. Guiding Principles on Governance for Islamic Collective Investment Schemes (IFSB-6)
2. Capital Adequacy Requirements for Sukûk Securitisations and Real Estate Investment (IFSB-7)
The two documents complement the existing IFSB Standards, namely the Capital Adequacy Standard for Institutions offering only Islamic Financial Services (IFSB-2), and the Guiding Principles on Corporate Governance for Institutions offering only Islamic Financial Services (IFSB-3), which were issued in 2005 and 2006, respectively.
Guiding Principles on Governance for Islamic Collective Investment Schemes (IFSB-6)
IFSB-6 complements IFSB-3 and other internationally recognised governance standards, by reinforcing international best practices, while addressing the specificities of governance for Islamic Collective Investment Schemes (ICIS).
The contents of IFSB-6 are divided into four parts:
1. Part I relates to the approach to general governance, whereby the adoption of good governance practices as prescribed in other internationally recognized governance standards is reinforced;
2. Part II addresses transparency and disclosure issues and aims to improve the information environment for ICIS investors. It also builds on, amongst other things, the disclosure requirements recommended under the IFSB Disclosures to Promote Transparency and Market Discipline for Institutions Offering Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds) (IFSB-4);
3. Part III focuses on compliance with Sharî`ah rules and principles and addresses various specificities of ICIS that include (a) the process of portfolio screening by ICIS Operators; (b) the role of Sharî'ah scholars in monitoring consistent compliance with the Sharî'ah; and (c) the process of purification of tainted income; and
4. Part IV examines additional protection required by ICIS investors by highlighting, among others, the need for adequate representation for investors in the organs of governance of ICIS as well as some industry practices that may require closer oversight.
Capital Adequacy Requirements for Sukûk Securitisations and Real Estate Investment (IFSB-7)
IFSB-7 deals with aspects relating to regulatory capital requirements for Sukûk that are not covered in the IFSB-2. These are:
(a) Capital requirements for IIFS that are holders of Sukûk which do not represent the holder's proportional ownership in an undivided part of an underlying asset (or pool of assets) where the holder assumes all rights and obligations attached to such an asset or pool of assets.
(b) The capital treatment of securitisation exposures, i.e. the exposures of an IIFS where it is, or acts in a capacity of an originator, issuer or servicer of a Sukûk issuance The Standard deals with (i) the conditions that need to be met in order for securitisation exposures to be derecognised or minimised; and (ii) the capital treatment of such exposures by IIFS upon their occurrence.
This Standard applies to both originating and issuing IIFS (including originating IIFS that invest in Sukûk that they themselves originate).
For real estate investment, this Standard deals primarily with the capital requirements for an IIFS that invests its own funds in real estate investment activities. In addition, the Standard stresses on the need for the authorities supervising IIFS to set appropriate threshold limits for IIFS that have real estate investment activities and financing activities involving real estate exposures.
