role of sharia compliance in islamic finance institutions - by anwar soubra - icompetences ifc2012

7/29/2019 Role of Sharia Compliance in Islamic Finance Institutions - By Anwar Soubra - iCompetences IFC2012

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Monday 7 January 20131 Anwar Misbah Soubra



Role of Sharia Compliance in IFI

Monday 7 January 20132 Anwar Misbah Soubra



Two Bodies

Monday 7 January 20133

Sharia Supervisory Board (SSB).

Sharia Compliance Department.

Anwar Misbah Soubra



1. Sharia Supervisory Board


The basic objective of the Sharia Board

is to supervise and direct the activities

of the Bank and to confirm itscommitment to abide by the Islamic

Sharia rules and regulations in all its

activities.

Anwar Misbah Soubra



Appointment of SSB


The Bank should have a Sharia Board

appointed by its shareholders, based on

a recommendation from the Board of Directors.

Anwar Misbah Soubra



Responsibility


Is restricted to provide an independent opinion,

based on the review of the operations at the

Islamic Bank, and report to shareholders that all

activities are in compliance with Islamic Shari’arules and principles;

The Bank’s management is responsible for

ensuring that the financial institution conducts its business in accordance with Islamic Shari’a rules

and principles.

Anwar Misbah Soubra



Review


Documents;

Agreement;

Contracts;

Transactions;

Investment Proposals;

Financing structures;

All activities.

Anwar Misbah Soubra



Communication with SSB


Recurring scheduled meetings.

Unscheduled meetings.

Remote communication by phone & e-mails.

Personal contacts and visits if in same

country.

Availability as needed by business.Anwar Misbah Soubra



Draw back


Over commitment with multi IFIs,

local and foreign.

Difficulty of communication.

Anwar Misbah Soubra



2. Internal Sharia Audit


To ascertain and confirm that the

activities of the financial institution are

in compliance with, and do not violateShari’a rules and regulations.

Examine the scope of Shar ia

compliance in the activities of theIslamic Institution.

Anwar Misbah Soubra



Definition


The Sharia Audit has a lingual meaning

to “guard” and “maintain”, and the

auditor is the guardian. In this respect,Sharia audit has a primary role in

superv i s ing and ensur ing the

commitment of Islamic Banks to theseSharia rules and regulations.

Anwar Misbah Soubra



Set Up of IFI

Monday 7 January 2013Anwar Misbah Soubra12

Branches.

Geographic spread.

Corporate Finance.

Consumer Finance.

Credit Cards.

Comprehensive ShariaDepartment.

Centralized location.

Investment Department.

Treasury Operations.

Structured financing &

Investment.

Single Sharia departmentmanager.



Comprehensive Sharia Compliance

Department




Skills of Sharia Officers


High Level Sharia Knowledge

Banking Education & Experience

Business Administration Education: Accounting,Finance, Financial Analysis.

English Language.

Communication Skills & Report Writing.



Examination on behalf of SSB


Contracts, Agreements,

Products,

Transactions, Articles of incorporation,

Financial statements, Reports,

Internal audit reports, Central Bank Inspection reports, and Other related Banking activities documents.

Anwar Misbah Soubra



Sharia Compliance Stages


Pre-execution = Sharia Review + Sharia

Structuring.

During process = Q & A + Supervision +On job Training.

Post execution = Sharia Audit.

IT Process.

Anwar Misbah Soubra



Professional Competency


Independence.

Academic background.

Supervision of the audit process.

Ethical standards.

Audit skills.

Knowledge of Sharia. Continuous learning and training.

Anwar Misbah Soubra



In Principle


Internal Sharia Auditor should not be an

executive position because this will

entail conflict of interest . Reference to AAOIFI.

Anwar Misbah Soubra



Functions


Prepare policies and detailed audit

procedures.

Prepare an audit plan annually that reflectsunderstanding of the activities, products,

and locations, and implementation of

Islamic Sharia rules and regulations. Operate with close coordination with SSB.

Anwar Misbah Soubra



Importance


Supervise and follow up on the Islamic Bankoperations and commitment to Shari’a rules andoperations.

• Weakness of awareness or knowledge of Islamic

Banks’ staff of the Sharia rules and standards.• The invention of new financial and investment

tools that require continuous follow up.• Transcends feelings of assurance and confidence to

clients that the bank is applying and abiding byShari’a guide lines.

Anwar Misbah Soubra



Pre-execution audit


Discuss the projects and feasibility studies from aShari’a compliance perspective.

Review the contracts and agreements underpreparation to be signed by contractual parties.

Shari’a compliance review of the suggestedfinancial structures considered to finance theprojects or transactions.

Prepare the proper standards to deal and cooperate

with conventional banks. Prepare the audit schedules to review the bank’s

operations.

Anwar Misbah Soubra



Continuous on-going audit


Ensure the approval of the Shari’a Board, if needed, on thefinancial transaction before execution starts.

Give the Shari’a opinion on the matters referred to the auditunit.

Provide remarks and comments on the contractdocumentation and execution of the financial transactionwith follow up to implement first hand amendments andcorrections.

Provide prompt review of Shari’a related issues as they ariseduring execution and take the necessary measures.

Ensure proper communication and understanding to avoidany error and deviation from the original objectives.

Anwar Misbah Soubra



Post execution audit


Follow up on the implementation of the previouslygiven comments during the execution of the

transaction.

Request the relevant management to participate andensure the correction of the un-rectified errors yet.

Review the financial transaction file after completing

execution of the transaction.

Review the accounting audit report. Review reports of external audit institutions.

Prepare and present a Shari’a Audit Report to the

Shari’a Board on quarterly basis.Anwar Misbah Soubra