Regulatory reforms, cross-sectoral approach to the regulation on top of 10th IFSB Summit

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Maan Barazy

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May 17, 2013, 3:38:13 PM5/17/13

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ISLAMIC FINANCIAL SERVICES BOARD

Media Contact:

Mrs. Siham Ismail Tel: +6 03 9195 1430 | Mobile: +6 012 373 5842 | Email: si...@ifsb.org

10th IFSB Summit Discusses Views on the Islamic Financial Services Industry’s Developments Following the Global Financial Crisis

Kuala Lumpur, 16 May 2013 – In the first part of the 10th IFSB Summit, key leaders in the Islamic financial services industry (IFSI) shared their thoughts on the industry’s developments following the global financial crisis, namely in the areas of regulatory reforms, cross-sectoral approach to the regulation of Islamic finance, and prospects and challenges for new jurisdictions.

The first session, themed, “Financial Regulatory Reforms: Global Overview”, was chaired by H.E. Sultan Bin Nasser Al Suwaidi, Governor, Central Bank of the United Arab Emirates. The speakers in the session includedH.E. Dr. Ishrat Hussain, Dean and Director, Institute of Business Administration, Pakistan & Former Governor, State Bank of Pakistan, H.E. Raed H. Charafeddine, First Vice-Governor, Banque du Liban and KarlCordewener, Deputy Secretary-General, Basel Committee on Banking Supervision, Bank for International Settlements. Highlighting the salient features of various global regulatory reforms in recent years, the distinguished speakers provided their insights on the possible implications of these reforms on the IFSI.

The panel focused on several initiatives undertaken by the Basel Committee in recent years, including Basel III, to bring back and re-establish the trust and confidence of stakeholders on the banking industry. These initiatives are also aimed at warranting a safe business model and fostering “ethical behaviour” by the banking institutions. However, the most important challenge will be to improve the business conduct of the financial institutions which is necessary for ensuring a stable and trusted financial system. A reference was also made on the guidance on macroprudential measures included in the Exposure Draft of the IFSB Revised Capital Adequacy Standard. The panel also stressed the need for a decisive policy action by the international community, given the ongoing vulnerabilities in the global financial system. The supervisory authorities should also be cognisant of the human dimension of structural reforms such as austerity measures being undertaken by many countries to improve their financial systems.

The second session, themed, “Cross-sectoral Approach to the Regulation of Islamic Finance and Market Development: Lessons Learnt”, was chaired by H.E. Sheikh Abdulla Saoud Al-Thani, Governor, Qatar Central Bank and Chairman of the IFSB. The speakers in the session included Ian Johnston, Chief Executive, Dubai Financial Services Authority, Bircan Akpinar, Executive Vice Chairman, Capital Markets Board of Turkey andEdy Setiadi, Executive Director, Islamic Banking Department, Bank Indonesia. The speakers shared the importance of an advanced, comprehensive, efficient and integrated approach in the supervision of all the three sectors of Islamic finance – Islamic banking, Islamic capital market, as well as Islamic insurance (Takaful).

On the aftermath of the global financial crisis, although the institutions offering only Islamic financial services (IIFS) suffered less of an impact compared to their conventional counterparts, there is a pressing need to maintain the stability of the Islamic financial system. This requires, among others, the enhancement of group-wide cross-sectoral supervision and micro- and macro-prudential supervision for a more comprehensive supervisory process. From the standard-setting perspective, the setting up of a Working Group on Core Principles for Islamic Finance regulation by the IFSB is seen as a stepping stone towards a greaterharmonisation among the three sectors. The inclusion of assessment methodology in the future standard is expected to be a significant step forward for the IFSI, where the IIFS will be benchmarked against the recommended international best practices.

The third session, themed “New Markets, New Frontiers – Prospects and Challenges”, was chaired by Professor Dr. Necdet Sensoy, Member of the Board, Central Bank of the Republic Of Turkey. The speakers in the session included H.E. Hamood Sangour Al Zadjali, The Executive President, Central Bank of Oman, H.E.Daniyar Akishev, Deputy Governor, National Bank of Kazakhstan and Dr. Filippo di Mauro, Senior Adviser - Research, European Central Bank. The distinguished speakers highlighted the progress and development, prospects and challenges faced by the IIFS in their respective jurisdictions.

New jurisdictions have the advantage of learning from the experiences of developed and developing jurisdictions in Islamic finance. However, to help build a robust, resilient and sound IFSI in these nascent jurisdictions, it is crucial to have in place the legal and regulatory framework and necessary infrastructure for the IFSI, develop ad-hoc instruments to facilitate liquidity management, and increase public awareness in Islamic finance. Building human capacity is also key, and this necessitates the creation of the right platforms and effective knowledge sharing. It was also emphasised that Islamic finance has the potential to address the financial needs of not only the Muslims in the European Union, but all communities. This requires, among others, the identification of customers and the potential products and markets for Islamic finance, and the promotion of greater transparency in products and processes. For the IFSI to flourish in these new jurisdictions, it needs to function as a complement to the conventional system. Public authorities should also provide a level playing field and initiate more coordination of initiatives across jurisdictions.

For more details on the 10th IFSB Summit and pre-Summit events, please visit www.ifsbmalaysia2013.com .

Kuala Lumpur, 17 May 2013 – In the first part of the 10th IFSB Summit, key leaders in the Islamic financial services industry (IFSI) shared their thoughts on the industry’s developments following the global financial crisis, namely in the areas of regulatory reforms, cross-sectoral approach to the regulation of Islamic finance, and prospects and challenges for new jurisdictions. The Summit was held on 16 and 17 May 2013 in Kuala Lumpur and hosted by Bank Negara Malaysia.

The first session, themed, “Financial Regulatory Reforms: Global Overview”, was chaired by H.E. Sultan Bin Nasser Al Suwaidi, Governor, Central Bank of the United Arab Emirates. The speakers in the session includedH.E. Dr. Ishrat Hussain, Dean and Director, Institute of Business Administration, Pakistan & Former Governor, State Bank of Pakistan, H.E. Raed H. Charafeddine, First Vice-Governor, Banque du Liban and Karl Cordewener, Deputy Secretary-General, Basel Committee on Banking Supervision, Bank for International Settlements. Highlighting the salient features of various global regulatory reforms in recent years, the distinguished speakers provided their insights on the possible implications of these reforms on the IFSI.

On the aftermath of the global financial crisis, although the institutions offering only Islamic financial services (IIFS) suffered less of an impact compared to their conventional counterparts, there is a pressing need to maintain the stability of the Islamic financial system. This requires, among others, the enhancement of group-wide cross-sectoral supervision and micro- and macro-prudential supervision for a more comprehensive supervisory process. From the standard-setting perspective, the setting up of a Working Group on Core Principles for Islamic Finance regulation by the IFSB is seen as a stepping stone towards a greater harmonisation among the three sectors. The inclusion of assessment methodology in the future standard is expected to be a significant step forward for the IFSI, where the IIFS will be benchmarked against the recommended international best practices.

The third session, themed “New Markets, New Frontiers – Prospects and Challenges”, was chaired by Professor Dr. Necdet Sensoy, Member of the Board, Central Bank of the Republic Of Turkey. The speakers in the session included H.E. Hamood Sangour Al Zadjali, The Executive President, Central Bank of Oman, H.E. Daniyar Akishev, Deputy Governor, National Bank of Kazakhstan and Dr. Filippo di Mauro, Senior Adviser - Research, European Central Bank. The distinguished speakers highlighted the progress and development, prospects and challenges faced by the IIFS in their respective jurisdictions.

For more details on the 10th IFSB Summit and pre-Summit events, please visit www.ifsbmalaysia2013.com .

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NOTE TO EDITOR:

About the Islamic Financial Services Board (IFSB)

The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. Towards this end, the IFSB works closely with relevant international, regional and nationalorganisations, research/educational institutions and market players.

The members of the IFSB comprise regulatory and supervisory authorities, international inter-governmental organisationsand market players, professional firms and industry associations.