A pioneering report calling for an independent audit of Shari’ah compliance in Islamic finance will be launched today at the Global Islamic Economy Summit in Dubai.
Following consultation with over 35 practitioners across four countries the Islamic Finance Council UK (UKIFC) and International Shari’ah Research Academy for Islamic Finance (ISRA) unveiled the ‘External Shari’ah Audit Report’, which seeks to strengthen Shari’ah assurance and calls for external Shari’ah auditing to be made mandatory in Islamic financial institutions across the globe.
With consumer and regulatory demands increasingly focusing on trust, transparency and accountability corporate governance has become a critical challenge for all financial institutions. In particular, this trend has shone a light on Islamic financial institutions, where in-house boards of scholars effectively self-regulate Shari’ah compliance, raising questions as to whether the current model of governance is fit for purpose.
The report, which reflects recent developments in international policies and regulation, proposes that external Shari’ah audit, requiring Islamic financial institutions to undertake an annual Shari’ah audit by a competent independent party, should become an essential development for the industry to augment the work currently done by Shari’ah boards.
Omar Shaikh, Advisory Board member of UKIFC commented: “Ensuring and maintaining the integrity of the Shari’ah is paramount to sustaining future confidence and growth in the Islamic finance sector. By providing an additional check, external Shari’ah audit will play an important role towards providing reassurance to scholars, financial institutions and customers.”
The report also provides a jurisdictional analysis of current external Shari’ah auditing requirements in Oman and Pakistan, where it has already become mandatory.
Prof. Dr Akram Laldin, Executive Director of ISRA added, “Various initiatives are being taken in different jurisdictions to ensure compliance and maintain the credibility of Islamic finance among stakeholders. External Shariah audit provides additional assurance and it does so with greater independence than others.”
Bahrain looks set to be the next jurisdiction to adopt external Shari’ah audit regulation with the Central Bank of Bahrain recently issuing a consultation paper on their proposals. Dr. Ahmed Abdul Hameed AlShaikh, The Deputy Director of the of Bahrain Institute of Banking & Finance commented, “We strongly believe that the next step in creating robustness in this industry and in safeguarding all relevant stakeholders is an appropriate external Shari’ah audit framework— which many central banks, including the Central Bank of Bahrain, are considering introducing in the near future.”
The report also focuses on implementation issues, providing specific recommendations on the role of central bank Shari’ah boards, requirements for public reporting, qualification of external Shari’ah auditors and the need for a professional body for Shari’ah scholars in Islamic finance.
Yasser S. Dahlawi, CEO of Shariyah Review Bureau concluded, “There is hardly a more important subject in the field of Islamic finance than external Shari’ah audit. As the industry undergoes change, this is the right time to report on something new: a new auditing framework, a new reporting mechanism, and new regulatory mandates. This is because a growing industry needs robust supervision to ensure its positive growth and future progress.”
The e-version of ‘External Shari’ah Audit Report’ can be found at www.ukifc.com and isra.my
For more information contact:
Chris Tait, Islamic Finance Council UK
(Tel) 0044 7931103573 or 0044 7193 6329
Mezbah Uddin Ahmed, ISRA
(Tel) 00603 76514224
Islamic Finance Council UK (UKIFC)
The UKIFC is a specialist advisory and development body focused on promoting and enhancing the global Islamic and ethical finance industry. The organisation was launched in 2005 by a group of likeminded professionals who sought to make a contribution to the development of the Islamic finance industry. The UKIFC specialises in four core areas, being:1) Ethical finance – helping to promote better co-ordination and understanding of the shared values between Islamic finance and the broader ethical finance arena; 2) Advisory – specialist capability in advising government agencies, regulatory bodies and financial institutions on creating enabling frameworks for Islamic finance; 3) Executive training – delivering bespoke capacity building programmes aimed at practitioners and regulators focused on commercial issues; and 4) Thought leadership – authoring reports, community education and providing industry comment towards influencing regulation and encouraging the development of the sector based on strong research and insights.
International Shari’ah Research Academy for Islamic Finance (ISRA)
ISRA is an autonomous body set-up under the direction of the Central Bank of Malaysia (Bank Negara Malaysia) to promote applied research in the area of Shari’ah and Islamic finance. ISRA contributes towards strengthening human capital development and provides a platform for greater engagement amongst practitioners, scholars, regulators and academicians via research and dialogue, in both the domestic and international arenas. Through pioneering research and rigorous intellectual dialogue, ISRA aims to promote innovation and dynamism and thus extend the boundaries of Islamic finance.