The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB) are doing an excellent job of designing appropriate standards for the Islamic finance industry, but neither has enforcement powers. These remain with national regulators. The AAOIFI standards should be viewed as similar to the International Financial Reporting Standards (IFRS), the enforcement of which is the responsibility of national regulators. Most Islamic banks voluntarily implement the AAOIFI standards and state this in their published accounts. The position of the IFSB is similar to that of the Bank for International Settlements (BIS), which has drawn up the Basel I and II capital adequacy requirements and guidance on risk management. The IFSB has examined how these standards can be adapted for Islamic financial institutions and it has developed its own standards which are posted on its website. These identify good practice for all IFSB members, which include all the regulatory authorities in the Muslim world and many beyond in majority non-Muslim countries. The AAOIFI and IFSB standards should be regarded as truly global. Where the standards are not implemented, this reflects regulatory shortcomings in the countries concerned, and not any shortcomings in these organizations which should be regarded as authoritative. There is no need for further international bodies as the infrastructure supporting the Islamic finance industry is more than adequate.
PROFESSOR RODNEY WILSON
IIndustry institution leaders should have the Shariah supervisory boards state in the fatwa (ruling) that the company abides by the requirements of standard-setting bodies. Once a few take the initiative, others will follow suit. Today’s fatwas are general and do not refer to standards set by standard-setting bodies to which many Shariah scholars belong to. OMAR KALAIR CEO, UM Financial Canada
At present, we are witnessing an apparent boom in ‘standard-setting institutions’ of all kinds and from all jurisdictions. And everyone appears to be soliciting membership and adherence as if there were a race going on. Quantity of membership appears to be more important than quality. However, regulatory standards are not without shortcomings and are not eternal or universal. This is certainly the case in an industry that just grew out of the ‘start-up’ phase and enters the very beginning of an exciting ‘innovation’ phase. A rightful concern for standardization is more than justified, as is an open invitation from relevant authorities to participate actively in the development and implementation thereof. An outcry for immediate ‘international’ submission to any suggested standards, however, is not proper. It will hinder innovation and will be counterproductive. Diversity brings competition, progress and growth. Moreover, since the regulations belong to the ‘muamalat’ sphere of life, every jurisdiction may set its own guidelines. It may try to profile and distinguish from other market competitors. Sometimes also, suggested standards have to be adapted to local customs or market disturbances. Market players and the market itself will decide compliance and push — whenever desired and needed — to convergence. The market will standardize and unify itself, certainly when it is based upon the same Shariah. PAUL WOUTERS Partner, BENER
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