Dec 6 (Reuters) – The Kuala Lumpur-based Islamic Financial Services Board (IFSB) is revising guidelines on the supervision of Islamic finance institutions around the world, helping tighten regulatory oversight of industry practices.
Guidelines from the IFSB, one of the main standard-setting bodies for Islamic finance, are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries.
The latest update complements stricter Basel rules, agreed globally to make banks safer after the 2007-09 credit crisis, IFSB secretary-general Jaseem Ahmed told Reuters.
This expands its original 2007 document, known as IFSB-5, to include areas such as regulatory capital, corporate governance, stress testing, securitisation exposures, liquidity, concentration and counterparty risk.
“Overall the revisions are significant, in particular the areas which were not envisaged in the IFSB-5,” Ahmed said.
“It is broadly analogous to Pillar 2 of the Basel accords.”
Founded in 2002, the IFSB’s initial efforts have focused on winning a wide membership base, leaving implementation and enforcement to national regulators to decide.
Now, however, the 187-member IFSB is issuing more detailed guidance in response to the global financial crisis, and a trend towards tightening regulation of conventional financial markets.
In the past year, the IFSB has issued separate guidelines on liquidity risk management and stress testing, while currently reviewing a draft on capital adequacy.
The revision provides more detailed guidance on areas such as Islamic windows, a practice which allows conventional banks to offer Islamic financial services provided that clients’ money is segregated from the rest of the bank.
Islamic windows are widely used in the industry but some regulators have struggled to cope with monitoring their risks and the complexity of financial reporting.
The IFSB plans a public hearing on the revised standard on Monday, Dec. 9 in Qatar, following a similar hearing in Kuala Lumpur last month. The final version is scheduled to be published in April of next year. (Editing by Eric Meijer)