The Islamic Financial Services Board (IFSB) has today issued the Exposure Draft of a Standard on Guiding Principles for Investor Protection in Islamic Capital Markets (ED-24) for Public Consultation for a period of sixty days, starting from 24 March 2020 until 24 May 2020. The IFSB invites comments from regulatory and supervisory authorities, international organisations, institutions offering Islamic financial services (IIFS), academics and other interested parties.

The development of a standard on investor protection in Islamic capital markets (ICM) recognises the crucial role that investor protection plays in the development and integrity of capital markets. Investor confidence and trust in a well-functioning ICM is essential in promoting financial stability, growth, efficiency and innovation over the long term. The standard therefore aims to set out minimum requirements to be applied in the ICM for the protection of investors and the promotion of financial stability. The main objectives of the standard are: (i) to address the Islamic finance-specific issues that need to be considered within regulatory frameworks for investor protection;

(ii) to define best practices for investor protection in relation to the ICM;

(iii) to support the development of robust investor protection frameworks for the ICM; and

 (iv) to increase harmonisation of regulatory practice, to support the development of the international ICM.

The guiding principles set out in the standard seek to address the protection of investors in relation to: (i) appropriate product governance processes; (ii) robust and proportionate Sharīʻah governance processes and protection of investors against misleading claims of Sharīʿah compliance; (iii) enhanced transparency and information to investors in relation to Sharīʻah-compliant equities, and protection of minority shareholders; (iv) protection against misconduct by financial intermediaries, including suitability and appropriateness assessment, fit and proper criteria, best execution, marketing and promotion, and conflicts of interest; (v) protection against the misuse of client assets; (vi) effective means of redress or resolution of disputes in the case of misconduct; and (vii) effective investor education.

The standard is intended to apply to ICM products (including ṣukūk, ICIS and Sharīʿah-compliant equities) and market intermediaries operating in the ICM, particularly those that are interfacing with clients (brokers, asset managers, portfolio managers, investment advisers, etc.). The provisions in the standard also address emerging financial technologies in the ICM, including crypto-asset platforms (specifically those that deal with assets which represent an interest in a business), peer-to-peer financing platforms, equity crowdfunding platforms and online retail trading and investment platforms.

The IFSB will be conducting two online webinars for public consultation, to be held on 20 April and 6 May 2020. Participation in the webinar is free and open to all. The usual public hearing for this standard will not be held in view of the current global outbreak, but will be replaced by the online webinar.