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  • Guidance Note Re Charter of Internal Shari'ah Supervision Committee

    After greetings,

    The Central Bank is pleased to attach herewith the Guidance Note Re Charter of Internal Shari’ah Supervision Committee, which applies to licensed financial institutions that conduct all or part of their activities and businesses in accordance with the provisions of Islamic Shari’ah (Islamic Financial Institutions).

    This Guidance Note must be read in conjunction with the regulations, standards and resolutions issued by the Central Bank and the Higher Shari’ah Authority.

    This Guidance Note is mandatory and effective from the date of this notice, taking into account what is stated in Article No. (4.2) of the Guidance Note.

    Please bring this Guidance Note to the attention of the board of directors of your institution at the next board meeting.

    Yours faithfully,

    • Article (1) Introduction

      1. 1.1 This Guidance Note Re Charter of Internal Shari’ah Supervision Committee (“Guidance Note” or “Note”) complements the Standard Re Shari’ah Governance for licensed financial institutions that conduct all or part of their activities and businesses in accordance with the provisions of Islamic Shari’ah (“Islamic Financial Institutions” or “IFIs”) that was issued by the Central Bank (“Shari’ah Governance Standard” or “SGS”) with the aim to promote development of the banking system and to ensure its effectiveness and efficiency.
         
      2. 1.2. IFIs must establish Shari’ah governance policies and governance mechanisms to ascertain that the adopted Charter of Internal Shari’ah Supervision Committee (“Charter”) is compliant with requirements outlined in the Guidance Note and requirements outlined in the regulations, standards and resolutions issued by the Central Bank and the Higher Shari’ah Authority (“Regulations, Standards and Resolutions”).
         
      3. 1.3. Where the Guidance Note contains a stipulation (in an article) to provide information, or undertake certain measures, or address particular terms, as a minimum requirement, the Central Bank may impose (new) requirements additional to those specified in the relevant article (of the Guidance Note).

    • Article (2) Objectives

      1. 2.1. The Guidance Note contains guidance aimed at facilitating implementation of requirements specified in the SGS related to establishment of the Charter.
         
      2. 2.2. The Guidance Note provides clarity on the supervisory expectations with respect to the Charter.

    • Article (3) Scope of Application

      1. 3.1. The Guidance Note applies to all IFIs.
         
      2. 3.2. The Guidance Note must be read in conjunction with the SGS and the standards and resolutions issued by HSA and notified to IFIs.

    • Article (4) Compliance and Charter Template

      1. 4.1. Template of the Charter in Article No. 5 represents minimum requirement, and IFI may add additional paragraphs to its Charter provided such addition does not contradict requirements specified in the Regulations, Standards, and Resolutions.
         
      2. 4.2. The IFIs should comply with the Charter’s Template from 21 April 2021.

    • Article (5) Charter's Template

      (template)

      Charter for Internal Shari’ah Supervision Committee in (insert the name of the Islamic Financial Institution)

      • 1. Introduction

        1. 1.1. This charter specifies the functional controls of Internal Shari’ah Supervision Committee of (insert the name of the Islamic Financial Institution) (“IFI”), and its meetings management, decision-making process, and other organizational matters (“Charter”).

      • 2. Definition of Internal Shari'ah Supervision Committee

        1. 2.1. Internal Shari’ah Supervision Committee (“ISSC”) is a body, appointed by the IFI, comprised of scholars specialized in Islamic financial transactions, with the mandate to independently supervise transactions, activities, and products of the IFI and ensures they are compliant with Islamic Shari’ah in all its objectives, activities, operations, and code of conduct and other mandates stated in the relevant laws and standards.

      • 3. Qualification of Members of ISSC

        1. 3.1. A member of the ISSC must meet the eligibility and competency requirements stipulated in the regulations, standards and resolutions issued by the Central Bank and the Higher Shar’ah Authority (“Regulations, Standards and Resolutions”).

      • 4.Independence of the ISSC

        1. 4.1. It is mandatory to comply with the controls and guidelines specified in the Regulations, Standards and Resolutions to ascertain independence of the ISSC members.

      • 5 Appointment of ISSC, Membership Period, Dismissal and Resignation of the Members

        1. 5.1. It is mandatory to adhere to the relevant standards regarding:
          1. appointment and formation of the ISSC,
          2. duration of the membership,
          3. dismissal or resignation of its members,

          as specified in the Regulations, Standards and Resolutions. The ISSC should select from among its members a chairperson and a deputy chairperson in its first meeting.

      • 6 Responsibilities and Authorities of the ISSC

        1. 6.1. It is mandatory to adhere to the standards regarding responsibilities of the ISSC stipulated in the Regulations, Standards and Resolutions.

      • 7 The ISSC's Meetings and Issuance of Resolutions

        1. 7.1. The ISSC must meet regularly, at least four times in the fiscal year, and the period between two meetings should not exceed 120 days.
           
        2. 7.2. Quorum for ISSC meeting is constituted by presence of majority of its members. The ISSC resolutions are issued by the majority of its attending members, and in case of tied votes, the side with the chairperson prevails. The opinion of the member who is not in favour of the ISSC’s resolution must be recorded in the minutes of meeting with its reasoning.
        3. 7.3. Attendance of an ISSC member must not be less than 75% of the total meetings held during a year. An ISSC member may attend or convene the meeting in full through video or audio means of communication, if necessary, provided that this is recorded in the minutes of the meeting and approved by the ISSC members.
        4. 7.4. The ISSC may invite to its meeting the IFI’s directors, employees, experts, advisors, and other parties that ISSC decides in order to obtain clarification regarding data and information needed by ISSC in relation to the issues under their review. For the avoidance of doubt, the invitees are not entitled to vote on the ISSC’s resolutions.
        5. 7.5. The ISSC may issue resolutions by circulation in urgent cases, provided unanimity is reached. Resolution issued by circulation must be recorded in the minutes of the first meeting held after the issuance. In case of a disagreement, the ISSC should hold a meeting as soon as possible.
        6. 7.6. Resolutions of the ISSC must be:
          1. written in a clear form, and
          2. accompanied by procedures necessary for implementation of the provisions contained therein in a manner that ensures adequate execution. The ISSC specifies the details that must be accompanied with the resolution in relation to its implementation.

      • 8 Methodology of ISSC's Functions

        1. 8.1.a.The ISSC must thoroughly investigate matters on its agenda to establish adequate (fact-based) understanding related to nature of the presented matter. If a matter does not become clear to the ISSC, it may postpone issuance of the resolution or request additional information or supporting studies, and accordingly (in this case) the subject matter shall be presented again after the request is addressed.
          1. b.The IFIs must provide the ISSC with adequate time to:
            1. i.investigate the matters submitted to the ISSC, and
            2. ii.review any contracts and documents that may relate to the presented matters.
        2. 8.2.The ISSC should trace the Shari’ah ruling on the matter it is examining by:
          1. a.leveraging the legal opinions of Shari’ah jurists in the credible schools of law, and
          2. b.ensuring that the Shari’ah ruling does not contradict the Shari’ah standards or resolutions adopted by the HSA, even if such ruling differs from rulings issued by the ISSC in the past.
        3. 8.3.Fatwas issued by ISSCs of other institutions (i) are not binding on the IFI’s ISSC, and (ii) existence of those fatwas do not obviate the need for a resolution from the IFI’s ISSC, even if the members are same.
        4. 8.4.The resolutions of the ISSC are binding on its respective IFI in accordance with the applicable laws and standards.
        5. 8.5.The IFI must comply with interpretations of the ISSC regarding the HSA’s resolutions and standards or their implementation.

      • 9 Subcommittees of the ISSC

        1. 9.1 To facilitate decision making process in urgent matters, the ISSC may choose to authorize:
          1. an executive member or
          2. an executive sub-committee,

          from among its members, and determine their responsibilities.
          Resolutions of the executive member or the executive sub-committee should be presented to the ISSC at its first meeting. Neither the executive member nor the executive committee has the right to issue a resolution on:

          1. important transactions that contain new structures, mechanisms, or documentation that have not previously been endorsed by the ISSC (such as new structures, mechanisms and documentation in Sukuk issuances, syndicated financings or products), or
          2. to adopt plan of internal Shari’ah audit or endorsing reports submitted by the internal audit.

      • 10 Internal Shari'ah Controls Functions

        1. 10.1 The IFIs must comply with the requirements related to Internal Shari’ah Control functions as stipulated in the Regulations, Standards and Resolutions.

      • 11 Engagement (Appointment) Letter

        1. 11.1 An IFI must ensure that:
          1. the engagement letter by which a candidate is appointed to the ISSC conforms to the requirements specified in the Regulations, Standards and Resolutions,
          2. the candidate, whom the IFI wants to appoint to its ISSC, must have accepted content of the engagement letter before his/her name is submitted to the HSA and the General Assembly for approval, and
          3. the engagement letter must be available in Arabic.

      • 12 Approval, Effectiveness, Amendment and Review of the Charter

        1. 12.1 The Charter may be amended based on a request by the ISSC and approved by the board of directors, and the amendment will be effective from the date of its approval. The ISSC reviews the Charter at least once every two years or sooner if needed.

    • Approval of the Charter

      Shaikh:Mr/Ms:
      Chairman of the ISSCChairman of the Board

       

      ..............................................................
      Date of Signing:Date of Signing:

       

      Date of Approval: (Date of the latest signature above)

      (end of the template)