Upcoming 12th IFSB Summit Gathers Momentum as Council Approves Adoption of Core Principles for Islamic Finance Regulation
The Islamic Financial Services Board (IFSB), the prudential and supervisory standard-setting body for the estimated US2.3 trillion global Islamic finance industry, convenes its 12th Annual Summit on 19 - 21 May 2015 at the Rixos Almaty in Kazakhstan.
The Summit, which is hosted by the National Bank of Kazakhstan, could not have a more pertinent theme: ‘Core Principles for Islamic Finance: Integrating with the Global Regulatory Framework.’ Indeed, the Council of the IFSB at its 26th Meeting, held in Jakarta, Indonesia in early April, approved the adoption of a new Standard on Core Principles for Islamic Finance Regulation (CPIFR)(Banking Segment), known as IFSB-17.
This Standard has been developed with the participation of IFSB member regulatory and supervisory authorities, Basel Committee on Banking Supervision and multilateral organisations including the International Monetary Fund (IMF)/World Bank in the working group and aims to complement the Basel Core Principles in assessing the strength and effectiveness of regulation and supervision by the regulatory and supervisory authorities – in countries with a significant Islamic banking industry. For the conventional sector, such assessment is carried out by the respective regulatory and supervisory authorities, peer reviews and by third parties, including by the IMF/World Bank as a part of their Financial Sector Assessment Programme (FSAP).
Core Principles for various financial sectors have become a standard tool to guide regulators and supervisors in developing their regulatory regimes and practices. Indeed Session Three of the upcoming 12th Summit aims to discuss key issues relating CPIFR for deliberation on how these could assist brining the Islamic Financial Services Industry (IFSI) to the next level of development by enhancing consistency in supervision and implementation of global standards across borders.
The main objective of the CPIFR, is to provide a set of Core Principles – along with associated assessment methodology – for the regulation and supervision of the IFSI, taking into consideration the specificities of the institutions offering Islamic financial services (IIFS) in the banking segment, the lessons learned from the financial crisis, and complementing the existing international standards, principally the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision.
“It is envisaged that these Core Principles will be used by jurisdictions as a benchmark for assessing the quality of their regulatory and supervisory systems and for identifying future work to achieve a baseline level of sound regulations and practices for Islamic finance. The CPIFR will promote further integration of Islamic finance with the international architecture for financial stability, while simultaneously providing incentives for improving the prudential framework for Islamic finance across jurisdictions so that it is harmonised and consistently implemented across the globe,” explained Jaseem Ahmed, Secretary-General of the IFSB.
The new standard aims to also facilitate the work of those supervisory authorities that are new to the regulation and supervision of IIFS and face challenges in identifying applicable principles and benchmarks for assessing the gaps in their existing policies and regulations, while addressing the specificities of Islamic finance. The differences in the operational and Sharī`ah characteristics of Islamic finance products in various jurisdictions highlight the need for standardisation of the prudential supervision framework at the international level.
The IMF/World Bank have completed over 84 FSAPs in several MENA and IFSB member countries, which, in certain cases have included an assessment of the Islamic banking, capital market and insurance sectors, However, many FSAP reports have either not reviewed Islamic finance sectors at all or identified the absence of applicable Core Principles for Islamic finance as a major hurdle for not performing a regular assessment.
In fact, with the IFSB-17 Standard adopted, the IFSB envisages to prepare the Core Principles for the Islamic insurance (Takāful) and Islamic capital market sectors at appropriate times in the future. It is also envisaged to launch an initiative in which the Core Principles assessment methodology would be pilot tested in specific jurisdictions.
These initiatives would represent significant developments in further integration of the Islamic finance system into the mainstream global financial system.
Discussion on Core Principles at the Summit will be complemented by two further Sessions. Three and Four on ‘New Regulatory Developments and the Impact on the Islamic Financial Services Industry’ and ‘Enabling Framework for the Assessment of Regulatory and Supervisory Regimes’ respectively.
The above three key sessions will be preceded by the Opening and Keynote Session during which the Islamic Financial Services Industry Stability Report 2015 will be launched, and Session One on a ‘Global Overview of the Islamic Financial Services Industry (IFSI): Trends and Policy Developments.’
The Summit will end with a final Session Five, which is a Panel Discussion on ‘The New Silk Road: The Importance of Regulatory Cooperation for Cross-Border Integration.’
The concept of an Islamic Finance Silk Road linking China, Russia and Central Asia to the Middle East, Asia, Africa and Europe has been mooted for some time. With the proliferation of the industry in all these regions as highlighted by the seedlings of an emerging Renminbi Sukūk market in Hong Kong; to the opening of new markets in the MENA region including Oman and Tunisia; to the debut sovereign Sukūk of European countries such as the UK and Luxembourg; to the licensing of the first Islamic bank in Germany, KT Bank AG; to the issuance of debut sovereign Sukūk in Africa by South Africa and Senegal, this concept is fast assuming an importance and momentum of its own.
As such, discussing regulatory cooperation to encourage cross-border integration; the issue of Islamic finance as a facilitator of economic and financial inter-linkages and real economy development; and key Islamic finance challenges for jurisdictions along the Silk Road, becomes imperative.
Robust interest in the upcoming Summit is highlighted by the confirmation of prominent speakers and thought leaders to speak at the one-and-a-half day event. These include inter alia the Governor of the National Bank of Kazakhstan, the Chairman of the Financial Services Authority of Indonesia, the Governors of the Central Bank of the UAE and of Sudan, the Director General of the Arab Monetary Fund, the Secretary General of the IFSB, the Advisor for the Middle East at the IMF, the CEO of Luxembourg for Finance, the CEO of ICD, and a Board Member of the Central Bank of Turkey.
The above speakers are complemented by speakers from the industry and allied services.
The IFSB Summit will be preceded by pre-Summit events, which in Almaty will comprise five such events, which will be held on 19 May 2015.
The Pre-Summit Events include three Sessions on the morning of 19 May titled ‘IFSB Meet the Members and Industry Engagement Session’; an ‘Industry Development Session by The World Bank’; and a ‘Knowledge Sharing Partner Session by INCEIF.’
In the afternoon, the IFSB and IRTI (International Research & Training Institute (IRTI) of the IDB Group will hold a Mid-Review of the “Islamic Financial Services Industry Development: 10-Year Framework and Strategies’; which will be followed by a ‘Kazakhstan Country Showcase’ organised by the host country.
The above pre-Summit events are an important platform for IFSB member and Non-member countries to articulate their Islamic finance initiatives, incentives and experiences in adopting and promoting the growth of a sound and stable Islamic financial services industry.
The 12th Annual IFSB Summit is specifically aimed at harnessing the latest developments and innovation in regulation, prudential standards, current market practices and future challenges to keep you informed about the global Islamic financial services market; to provide a platform for dialogue with your peers; and to give you a voice in contributing to the future direction of the industry. This year, there is an added focus on Central Asia, the latest frontline for the global Islamic finance industry.
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