ISLAMIC FINANCE PRODUCTS AND SERVICES
SUMMARY : Chapter 2: ISLAMIC BANKING & FINANCE OPERATIONS
2.1 Upgrading the level of Shariah Compliance in Islamic Banking business activities & operations (Malaysia)
Environments for Islamic
Banking & Finance
Syariah Governance Framework (SGF) 2019 IFSA 2013
Operation
Issued by Bank Negara
Effective 1/4/2020
IFIs should have a Shariah governance structure, Shariah Compliance and Financial Stability, with a
processes, and arrangements to make sure that all clear focus on Shariah Compliance and
of their operations and business activities are in line Governance.
with Shariah.
Making the SGF requirement stronger.
Shariah Review, Shariah Audit, Shariah Risk
Management, and Shariah Research all have clear Adding more rules about how businesses should act
roles. and how customers should be protected.
Shariah Review (SGF 2010 – Section IV Principle (i)
DEFINITION : A qualified Shariah officer(s) regularly checks that IFIs' activities and operations are in line with
Shariah law.
SCOPE Overall IFI’s business operation including the end-to-end product development process, which start
from product structuring to Product offering
FUNCTIONS Examination & evaluation of IFI’s level of compliance to shariah, remedial rectification measures
to resolve non-compliance & control mechanism to avoid recurrences.
REVIEW PROCESS 1)Planning & Review Shariah Review Program. 2)Documentation of Processes involved
in SR. 3)Communicating SR outcome to SC & Management 4)Rectifying instances of SNC events
transactions
Shariah Governance Framework model for IFIs
1. SHARIAH as overarching principle in Islamic finance
2. CENTRALIZED SHARIAH ADVISORY COUNCIL
3. BOARD Overall oversight on Shariah governance structure & Shariah compliance
, 4. SHARIAH COMMITTEE Oversight accountability on Shariah related matters
5. MANAGEMENT • Ensure executions of business & operations are in accordance with Shariah
principles • Provide necessary support to the Shariah Committee
Shariah Compliance and Research Functions
6. Shariah Risk Management Control Function : Identify, measure, monitor, report & control Shariah
noncompliance risk
7. Shariah Review Function : Review business operations on regular basis to ensure Shariah
compliance
8. Shariah Research Function : Conduct in-depth Shariah research prior to submission to the Shariah
Committee
9. Shariah Audit Function : Provide independent assessment & objective assurance designed to value
add & improve IFI’s compliance with Shariah
POLICY DOCUMENT ON SHARIAH GOVERNANCE 2019 - Key organ under shariah governance
1. Control function : ensure effective management of shariah non-compliance risk
2. Management : ensure comply with shariah all times
3. Board: ensure institutionalisation of robust shariah governance framework
4. Shariah Committee : provide objective, sound shariah decision or advice
5. Secretariat : provide operational support
CHALLENGES TO BANKING & FINANCE OPERATIONS DEVELOPMENT
External challengers Internal challengers
1. Institutional • Regulatory • Regulatory risks 3. Bank’s •Organization • Regulatory risks •
Environment Environment •SNC risks – Non Structure and structure SNC risks –
• Tax structure compliance to • IT/system Non-compliance to
• Capital SAC’s resolution Resources platform structure SAC & Bank’s SC
requirement, • Legal risks – • Availability of resolutions
Capital charge Enforcement of Talents / • Legal risks –
• Accounting legal documents experienced staff Enforcement of
standard legal documents
• Reputational risk
2. Market • Product • Product 4. SOP & • Comprehensive • Operational risks
competitiveness acceptance risk SOP & SNC risks
SUMMARY : Chapter 2: ISLAMIC BANKING & FINANCE OPERATIONS
2.1 Upgrading the level of Shariah Compliance in Islamic Banking business activities & operations (Malaysia)
Environments for Islamic
Banking & Finance
Syariah Governance Framework (SGF) 2019 IFSA 2013
Operation
Issued by Bank Negara
Effective 1/4/2020
IFIs should have a Shariah governance structure, Shariah Compliance and Financial Stability, with a
processes, and arrangements to make sure that all clear focus on Shariah Compliance and
of their operations and business activities are in line Governance.
with Shariah.
Making the SGF requirement stronger.
Shariah Review, Shariah Audit, Shariah Risk
Management, and Shariah Research all have clear Adding more rules about how businesses should act
roles. and how customers should be protected.
Shariah Review (SGF 2010 – Section IV Principle (i)
DEFINITION : A qualified Shariah officer(s) regularly checks that IFIs' activities and operations are in line with
Shariah law.
SCOPE Overall IFI’s business operation including the end-to-end product development process, which start
from product structuring to Product offering
FUNCTIONS Examination & evaluation of IFI’s level of compliance to shariah, remedial rectification measures
to resolve non-compliance & control mechanism to avoid recurrences.
REVIEW PROCESS 1)Planning & Review Shariah Review Program. 2)Documentation of Processes involved
in SR. 3)Communicating SR outcome to SC & Management 4)Rectifying instances of SNC events
transactions
Shariah Governance Framework model for IFIs
1. SHARIAH as overarching principle in Islamic finance
2. CENTRALIZED SHARIAH ADVISORY COUNCIL
3. BOARD Overall oversight on Shariah governance structure & Shariah compliance
, 4. SHARIAH COMMITTEE Oversight accountability on Shariah related matters
5. MANAGEMENT • Ensure executions of business & operations are in accordance with Shariah
principles • Provide necessary support to the Shariah Committee
Shariah Compliance and Research Functions
6. Shariah Risk Management Control Function : Identify, measure, monitor, report & control Shariah
noncompliance risk
7. Shariah Review Function : Review business operations on regular basis to ensure Shariah
compliance
8. Shariah Research Function : Conduct in-depth Shariah research prior to submission to the Shariah
Committee
9. Shariah Audit Function : Provide independent assessment & objective assurance designed to value
add & improve IFI’s compliance with Shariah
POLICY DOCUMENT ON SHARIAH GOVERNANCE 2019 - Key organ under shariah governance
1. Control function : ensure effective management of shariah non-compliance risk
2. Management : ensure comply with shariah all times
3. Board: ensure institutionalisation of robust shariah governance framework
4. Shariah Committee : provide objective, sound shariah decision or advice
5. Secretariat : provide operational support
CHALLENGES TO BANKING & FINANCE OPERATIONS DEVELOPMENT
External challengers Internal challengers
1. Institutional • Regulatory • Regulatory risks 3. Bank’s •Organization • Regulatory risks •
Environment Environment •SNC risks – Non Structure and structure SNC risks –
• Tax structure compliance to • IT/system Non-compliance to
• Capital SAC’s resolution Resources platform structure SAC & Bank’s SC
requirement, • Legal risks – • Availability of resolutions
Capital charge Enforcement of Talents / • Legal risks –
• Accounting legal documents experienced staff Enforcement of
standard legal documents
• Reputational risk
2. Market • Product • Product 4. SOP & • Comprehensive • Operational risks
competitiveness acceptance risk SOP & SNC risks
