Press release: CIBAFI Submitted Comments to the Islamic Financial Services Board (IFSB)

  • 27/May/2020

27th May 2020, Manama, Kingdom of Bahrain, Kuala Lumpur, Malaysia | Aligned with its role as an advocate of the Islamic financial services industry (IFSI), the General Council for Islamic Banks and Financial Institutions (CIBAFI), the global umbrella of Islamic financial institutions, announced that it has submitted its comments on 21st May 2020 to the Islamic Financial Services Board (IFSB) on the Exposure Draft No: 24 “Guiding Principles for Investor Protection in Islamic Capital Markets”.

The Exposure Draft has been issued on 24th March 2020 and was open for public consultation until 24th May 2020.

In its comments, CIBAFI thanked the IFSB for giving the opportunity to the Islamic financial services industry to comment on the Exposure Draft (ED) and provided collective feedback of its member banks from over 34 jurisdictions, comprising the following key points.

Firstly, the ED states the date of implementation of the standard taking into account an adequate pre-implementation period. However, it did not provide a guiding timeline for the pre-implementation period to ensure effective implementation in different jurisdictions, which is recommended. Moreover, for wider accessibility and understanding, the ED should be issued in both Arabic and English languages, as a minimum.

Secondly, the development of a code of ethics governing the conduct of Islamic Capital Market (ICM) professionals is stated in the ED. However, it does not specify the authority that will be responsible for the approval of the code of ethics. In this context, the ED should specify the local authority responsible to approve and ensure that the code of ethics covers all activities of market intermediaries.

Thirdly, the ED states that the firms shall undertake suitability assessments of clients when offering investment advice or portfolio management services in Shariah-compliant instruments. In addition, it is recommended that the ED should also indicate the need for continuous suitability assessment which means that firms should devise appropriate re-assessment mechanism of client’s profiling. Moreover, the ED stresses on the appointment of natural persons that are ‘fit for the job’ and possess the necessary knowledge and competence to fulfil their obligations but does not indicate on the qualification and experience requirement in this regard. Thus, it is recommended that the ED should be revised to include a recommendation for regulators to set minimum qualification and experience criteria necessary for employees of firms to fulfil their obligations.

Fourthly, firms should observe that their marketing communications are fair, clear and not misleading for clients or potential clients. However, the ED did not indicate which authority should ensure the appropriateness of the marketing content. In this case, the ED should include a recommendation for the regulators to devise a ‘Content Screening Mechanism’ to verify that the marketing information about the firm, its operations, Shariah-compliance, products and services are disclosed fairly, accurately and on a timely basis.

This initiative is aligned with CIBAFI’s first strategic objective of Advocacy of Islamic Finance Values and Related Policies & Regulations. CIBAFI continues to support the Islamic financial services industry through various activities and initiatives, including providing industry stakeholders with a platform to discuss emerging issues, representing the industry at major global financial events, and sharing knowledge through specialized publications and comprehensive training programmes.

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