1. Consultation on global benchmark rate reforms and development of risk-free rates implementation solutions and IBOR [interbank lending rate] fallback documentation
2. Standard Sukuk documentation
3. Practical training on IIFM published standards
4. Industry consultation meetings and virtual awareness seminars
5. Revised Malaysian legal opinion on Tahawwut Master Agreement
6. Publication of white paper on IBOR transition, and
7. Sukuk Report 10th Edition.
Review of 2021
The following is a brief overview of IIFM activities during 2021.
In March 2021, IIFM published the standard set of ‘Template Sukuk Al Mudarabah Documents’ for perpetual Tier 1 issuances, which comprises the following:
• Template prospectus
• Master Mudarabah Agreement,
• Declaration of trust.
The purpose of Sukuk Mudarabah standards is to provide the industry with a standardized set of document templates addressing clauses that are repetitive and require transparency/clarity during the drafting of the Sukuk prospectus and related issuance documentation, while also standardizing definitions and updating Shariah requirements.
Issuers, arrangers, legal advisors and other related parties will benefit in the drafting of voluminous Sukuk documentation for issuers which will offer greater transparency and comfort to investors and lead to efficiency and cost reduction.
Global benchmark rate reforms — solutions for implementing alternative benchmark rates
In November 2020, an industry-wide virtual consultation meeting was organized by IIFM to assess the impact of the transition to risk-free rates (RFRs) on different segments of the Islamic finance industry, identify remedies and solutions as well as highlight related issues such as accounting, governance and contractual obligations, etc.
More than 180 participants from 11 jurisdictions representing central banks and regulatory bodies, Islamic and international financial institutions, standard-setting bodies and associations, law and accounting firms, other business service providers as well as eminent Shariah scholars took part in the meeting.
In March 2021, IIFM published the recommendations from the meeting in the form of a white paper which served as the basis for development work undertaken by IIFM on an urgent basis on this major transformation to RFRs which will have an effect on new and legacy contracts, Islamic financing arrangements (syndicated and bilateral) and hedging and capital market securities such as Sukuk.
Based on the recommendations contained in the paper, three separate work streams for financing, hedging and Sukuk were formed by IIFM consisting of leading institutions to deal with this important development and achieve mutually acceptable solutions relating to IIFM mandated areas of focus.
IIFM commenced work on the following two priority areas:
• RFR implementation solutions for Islamic financing transactions, and
• Islamic hedging-related IBOR fallback documentation.
In October 2021, IIFM’s Shariah board approved the IIFM Standard ‘Shari’ah-Compliant Structuring Solutions for RFR Implementation for Murabahah and Ijarah Transactions’ for the benefit of the industry.
Work on the ISDA [International Swaps and Derivatives Association]–IIFM Standard ‘IBOR Fallback Definitions Booklet and Bilateral Amendment Agreement’ for Islamic hedging transactions is also in advanced stages of finalization and expected to be published before the global regulatory deadline of end of December 2021.
IIFM, in coordination with its joint partner ISDA, issues joint legal opinions on the enforceability of financial contracts in jurisdictions with close-out netting legislation. So far, legal opinions are available on English law, Singaporean law and UAE federal law. The legal opinion on Malaysian law is currently being revised.
Capacity-building and professional development
Providing training on IIFM standards helps in creating better understanding on the practical aspects and workings of IIFM published standards and also serves as capacity-building and professional development of financial institutions’ human resources.
The first-ever training course on IIFM standards was launched with the two-day virtual workshop titled ‘Liquidity Management Master Class’ which took place in October 2021. In order to keep the course focused and interactive within a smaller group, the maximum number of attendees was limited to 20 participants. Due to an overwhelming response, a second edition of the workshop was organized in November 2021.
Annual Sukuk report
The annual IIFM flagship Sukuk Report is one of the main sources of reference on the Sukuk market and the 10th anniversary edition of the report was published in August. Work on the 11th edition has already commenced and is expected to be published by mid-2022.
Industry consultation and awareness events
IIFM organized two Sukuk-related webinars during 2021, a joint IIFM–IILM [International Islamic Liquidity Management Corporation] virtual seminar in conjunction with the 8th Annual Indonesia Shari’ah Economic Festival (or ISEF 2021) and also participated as a co-organizer in the 5th IILM Shari’ah Roundtable (Virtual).
A virtual industry consultation meeting is being planned on Islamic syndication documentation standardization in early 2022. Besides the aforementioned events, IIFM also virtually held its board of directors meetings and Shariah board meetings.
Other standardization initiatives
As part of its mandate to standardize financial documentation to support the development of the Islamic finance industry, IIFM in consultation with its members and the market continues to explore new segments of the industry where its standards will add value and benefit all stakeholders, particularly financial institutions.
Islamic syndication documentation standardization has been identified as an area where IIFM standards will enhance the segment and enable further growth of the market. An assessment exercise on this initiative is already underway and the discussion paper for the consultation meeting is being finalized.
A virtual meeting will be organized in 2022 where syndication documentation standardization requirements will be deliberated upon by key stakeholders representing Shariah scholars, regulators, banks, law firms and other market participants including Islamic infrastructure institutions so that the key issues to be tackled are identified and the exact syndicated finance-related documents are prioritized for standardization purposes.
IIFM will continue with its standardization and industry development initiatives and during 2022, in addition to syndication documentation standardization, IIFM will also be looking to develop standard documentation for allocated gold (jointly with LBMA [London Bullion Market Association] and the World Gold Council), combination or hybrid Sukuk structures and documentation as well as additional liquidity management standards in consultation with industry stakeholders. IIFM will also be assessing the growing requirement for environmental, social and governance-related initiatives as well as fintech-related digitized and smart documentation standards.