Standard re Shari’ah Governance for Takaful Insurance Companies
Article (1) Introduction
1.1 The Central Bank seeks to promote development of the Takaful Insurance activities to ensure its effectiveness and efficiency. To achieve this, Takaful Insurance Companies must have in place comprehensive and effective governance frameworks to enhance the compliance with Islamic Shari’ah Provisions to ensure their resilience, and promote general financial stability.
1.2 This Standard Re Shari’ah Governance For Takaful Insurance Companies (“the Standard”) is issued pursuant to the powers vested in the Central Bank under the provisions of the Federal Law No. (6) of 2007 on Organization of Insurance Operations and its amendments, and the Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities and its amendments.
This Standard complements the requirements outlined in the Regulation Regarding Takaful Insurance and the Corporate Governance Regulation for Insurance Companies.
1.3 Where this Standard includes a requirement to provide information, to take certain measures, or to address certain items listed as a minimum, the Central Bank may impose requirements, which are additional to the requirements provided in the relevant article.
Article (2) Objective
2.1 The objective of this Standard is to set the minimum requirements for the Companies (“the Company”) to ensure their compliance with Islamic Shari’ah Provisions in all their objectives, activities, operations, and code of conduct.
2.2 This Standard elaborates on the supervisory expectations of the Central Bank with respect to Shari’ah Governance for Takaful Insurance Companies.
Article (3) Scope of Application
3.1 This Standard applies to all incorporated Takaful Insurance Companies. The Companies established in the UAE with Group relationships, including Subsidiaries, Affiliates, or international branches, must ensure that the Standard is adhered to on a solo and Group-wide basis.
3.2 This Standard must be read in conjunction with the standards and resolutions issued by the Central Bank and the Higher Shari’ah Authority (“HSA”) and notified to Takaful Insurance Companies.
Article (4) Definitions
For the purposes of this Standard, the following words and phrases shall have the meanings stated below.a. Senior Management: The individuals or body responsible for managing the Company on a day-to-day basis in accordance with strategies, policies and procedures set out by the Board, generally including, but not limited to, the chief executive officer, chief financial officer, chief risk officer, and heads of functions of compliance, Internal Shari’ah Control, internal audit and Internal Shari’ah Audit.
b. Independence: Ensuring that the ISSC is not subject to any form of undue influence when issuing resolutions and Fatwas in accordance with the Shari’ah parameters, and ensuring that the Internal Shari’ah Control Division and Internal Shari’ah Audit Division are also not subject to any form of undue influence. This should be carried out to strengthen the confidence of Participants, shareholders and stakeholders in the Company’s compliance with Islamic Shari’ah Provisions.
c. External Shari’ah Audit: An annual assessment conducted by external body to inspect and assess the Company’s compliance with Islamic Shari’ah Provisions and the level of adequacy and effectiveness of its Shari’ah governance systems.
d. Internal Shari’ah Audit: The regular process to inspect and assess the Company’s compliance with Islamic Shari’ah Provisions and the level of adequacy and effectiveness of Company’s Shari’ah governance systems.
e. Islamic Shari’ah Provisions:
a. The resolutions, Fatwas, regulations and standards issued or approved by the Higher Shari’ah Authority in relation to businesses and activities of the Company ("HSA’s Resolutions"),
b. The resolutions and Fatwas issued or approved by the Internal Shari’ah Supervision Committee of the respective Company, in relation to businesses and activities of such Company ("ISSC’s Resolutions"), provided that they do not contradict HSA’s Resolutions.
f. Contribution: The consideration which the Participant undertakes to pay on basis of the donation (Tabarru’) commitment for his/her subscription in Participants’ Account with the Company in order to compensate the damages or pay the benefits to the eligible beneficiary.
g. Takaful Insurance: A collective contractual arrangement aiming at achieving mutuality and cooperation among a group of Participants against certain risks, whereby each Participant pays certain Contribution to form an account called the Participants’ Account.
This account is used for paying the entitled compensations and/or benefits when risk is realized, in accordance with the terms and conditions. The Company manages this account and invests its funds.
All transactions of the Company shall be in accordance with the Islamic Shari’ah Provisions.
h. Participants’ Account: An account created by the Company to deposit the Contribution amounts, the returns from its investment, and the revenues from the Takaful Reinsurance (Retakaful). The personal capacity implications should be attributed to this account and it should have financial independency from the Company. This account shall be responsible for compensating Participants, beneficiaries and affected third parties, in accordance with the terms of the Takaful Insurance Policies. The Wakala fees and the amounts of compensation and/or benefits are paid to the Participants from this account, in addition to the relevant allocations or reserves, as determined by the Central Bank. The Company must manage the account on behalf of the Participants by Wakala and it must represent it in all matters related thereto.
This account is termed as (Risk Coverage Account) in family Takaful insurance.
i. Takaful Insurance Accounts: All accounts existing at the Company, including Participants’ Accounts and/or Participants’ Accounts for family Takaful insurance, and shareholders’ accounts, noting that the Takaful Insurance is exclusively of the Participants’ Accounts.
j. Subsidiary: An entity (the 'first entity') is a subsidiary of another entity (the 'second entity') if the second entity:
a. holds a majority of the voting rights in the first entity;
b. is a shareholder of the first entity and has the right to appoint or remove a majority of the Board or managers of the first entity;
c. is a shareholder of the first entity and controls alone, pursuant to an agreement with other shareholders, a majority of the voting rights in the first entity; or
d. if the first entity is a subsidiary of another entity which is itself a subsidiary of the second entity.
k. Affiliate: An entity that, directly or indirectly, controls, is controlled by, or is under common control with another entity. The term control as used herein shall mean the holding, directly or indirectly, of voting rights in another entity, or of the power to direct or cause the direction of the management of another entity.
l. Fatwas: Juristic opinions on any matter pertaining to Shari’ah issues in Takaful Insurance, issued by HSA or ISSC.
m. Internal Shari’ah Control Division (or Section): A technical division (or section) in the Takaful Insurance Company that supports the ISSC in its mandate.
n. Internal Shari’ah Supervision Committee: A body appointed by a Company, comprised of scholars specialized in Islamic financial transactions, which independently supervises transactions, activities, and products of the Company and ensure its compliance with Islamic Shari’ah Provisions in all its objectives, activities, operations, and code of conduct.
o. Board: Takaful Insurance Company’s board of directors.
p. Group: A group of entities which includes an entity (the ‘first entity’) and:
a. any Parent of the first entity;
b. any Subsidiary of the first entity or of any Parent of the first entity;
c. any Affiliate.
q. Participant: An individual that holds a Participation Membership Policy and a Takaful Insurance Policy, who undertakes to regularly pay the Contribution, and who, or his/her legal heirs or assignees, where assignment is allowable, shall have the right to receive compensations or benefits provided by the Participants’ Account.
r. Shari’ah Non-Compliance Risks: Probability of financial loss or reputational risk that Takaful Insurance Company might incur for not complying with Islamic Shari’ah Provisions.
s. Confidential Information: Information that is publicly unavailable and which may only be disclosed where permitted.
t. Regulation: Regulation regarding Takaful Insurance issued in 2022.
u. Company/Companies: The Takaful Insurance Company, which is incorporated and practices its business in accordance with the provisions of the Law, the Executive Regulation and the Regulation regarding Takaful Insurance, and whose all businesses and activities are in accordance with the Islamic Shari’ah Provisions.
v. Higher Shari’ah Authority: An authority that exercises the mandates and authorities stipulated in Regulation regarding Takaful Insurance and the notices issued by the Central Bank.
Article (5) General Requirements
5.1 The Company must comply with Islamic Shari’ah Provisions in all of its objectives, activities, operations and code of conduct at all times.
5.2 The Company must have in place governance controls and mechanisms in accordance to its size and complexity of its operations to ensure compliance with Islamic Shari’ah Provisions in all of its objectives, activities, operations and code of conduct.
5.3 Branches of foreign licensed Takaful Insurance Companies that conduct businesses and activities in accordance with the Islamic Shari’ah Provisions must adhere to this Standard or establish equivalent arrangements to ensure regulatory comparability and consistency. The equivalent arrangements, if applicable, shall include the matters related to general assembly, the Board and its committees without contradicting the prevailing laws in the UAE. The equivalent arrangements shall be submitted to the Central Bank for approval.
5.4 The Shari’ah governance of a Company must include the following as minimum requirements:
a. Stating the responsibility of the Board in regards to the Company’s compliance with Islamic Shari’ah Provisions, the complete supervision on the Company, and establishing an adequate Shari’ah governance framework.
b. Identification of the Senior Management responsibilities related to the Company’s compliance with Islamic Shari’ah Provisions and providing adequate resources for implementation of Shari’ah governance requirements to ensure that the Company’s businesses are carried out in compliance with Islamic Shari’ah Provisions.
c. Appointment of a qualified Internal Shari’ah Supervision Committee (“ISSC”) in accordance with the fit and proper requirements set out in this Standard.
d. Establishment of Internal Shari’ah Control Division.
e. Establishment of Internal Shari’ah Audit Division1.
f. Publication of the ISSC’s Resolutions regarding the Company’s products, services, fees, and other basic mechanisms governing its operations.
5.5 This Standard must be implemented through a set of policies and procedures that outline the structure, roles, responsibilities, accountability, scope and duties of different functions, and reporting lines and communication channels between different functions with regard to the Company’s compliance with Islamic Shari’ah Provisions.
5.6 The Company must spread awareness regarding Takaful Insurance and boost the culture of compliance with Islamic Shari’ah Provisions within the Company, including conducting workshops for the members of the Board and Senior Management on Takaful Insurance and compliance with Islamic Shari’ah Provisions.
1 The requirements stated in (d) and (e) are not related to the number of employees within the concerned division, as the division can be managed by one person. The number of employees required is subject to the size and nature of the business of each Company. The number of employees is determined, after consultation with the ISSC, to carry out their responsibilities.
Article (6) Responsibilities of the Board
6.1 The Board of a Company is ultimately responsible for the Company’s compliance with Islamic Shari’ah Provisions. The Board is expected to be aware of Shari’ah Non-Compliance Risks and its potential impact on the Company. Accordingly, the Board is responsible for establishing and implementing a Shari’ah governance framework that is commensurate with the size and complexity of the Company’s operations and its risk appetite, to ensure its compliance with Islamic Shari’ah Provisions.
The Shari’ah governance framework shall incorporate the three lines of defense approach comprising the business line, Internal Shari’ah Control function, and Internal Shari’ah Audit function.
6.2 The Board must nominate ISSC members to the general assembly which has the authority to establish the ISSC and to appoint its members.
6.3 The Board must, in coordination with the ISSC, ensure the development, approval and implementation of internal policies related to the Company compliance with Islamic Shari’ah Provisions.
6.4 The Board must maintain an effective communication with the ISSC, and conducting meetings to discuss issues pertaining compliance with the Islamic Shari’ah Provisions, with at least one meeting per financial year.
6.5 The Board must refer to the ISSC for all Shari’ah matters related to the Company’s activities, operations and code of conduct.
6.6 The Board must ensure that the annual Shari’ah report issued by the ISSC is submitted to the HSA for review and approval before presenting it to shareholders at the general assembly.
Board’s Risk Committee
6.7 The Board’s Risk Committee (“Risk Committee”) must
a. supervise and monitor management of Shari’ah Non-Compliance Risks, and set controls in relation to this type of risk, in consultation with ISSC and through the Internal Shari’ah Control Division.
b. approve the establishment of framework for management of Shari’ah Non-Compliance Risks as part of the overall risk management system of the Company, and must review it and oversee its implementation by the Senior Management.
c. ensure there is an information system that enables the Company to measure, assess and report Shari’ah Non-Compliance Risks. It must also ensure that reports are submitted on a timely manner to the Board and Senior Management, in suitable formats for their use and understanding.
Board’s Audit Committee
6.8 The Board’s Audit Committee (“Audit Committee”) must:
a. evaluate the effectiveness of the Company’s internal policies that were approved by the ISSC and designed to monitor compliance of the Company with Islamic Shari’ah Provisions.
b. assess the effectiveness and adequacy of Internal Shari’ah Audit and its contribution in ensuring Company’s compliance with Islamic Shari’ah Provisions. The Audit Committee’s responsibility includes the following:
- Assess the independence, effectiveness and adequacy of Internal Shari’ah Audit scope and programs.
- Review the reports prepared by the Internal Shari’ah Audit Division to ensure that all necessary measures have been undertaken.
- Facilitate the work of the Internal Shari’ah Audit Division.
- Hold regular meetings with the head of the Internal Shari’ah Audit Division with a minimum of two meetings in a financial year.
c. review the scope, results, and adequacy of the External Shari’ah Audit review (if applicable). In addition, the Audit Committee’s responsibility includes the following:
- Facilitate the work of the External Shari’ah Auditor.
- Review the reports prepared by External Shari’ah Auditor to ensure that the Senior Management have taken all necessary measures in this regard.
- Hold meetings with the External Shari’ah Auditor with a minimum of once in the financial year.
6.9 It is recommended that the Audit Committee invites a member of the ISSC to attend the meetings when discussing the Internal Shari’ah Audit report to ensure compliance of the Company with the resolution of the ISSC concerning the content of the report. The Audit Committee and the member of ISSC cannot change the ISSC’s resolution in this regard.
Article (7) Responsibilities of the Senior Management
7.1 The Senior Management must execute and manage the Company’s businesses and activities in compliance with Islamic Shari’ah Provisions.
7.2 The Senior Management is responsible before the Board for:
a. submitting Shari’ah matters related to all Company’s businesses and activities, including its policies, internal regulations, code of conduct, services and products to the ISSC, and should not consider approval of any of the Group’s Shari’ah supervision committees (or equivalent committees) outside the UAE as substitution to approval of the ISSC, and
b. ensuring implementation of the ISSC’s Resolutions.
7.3 The Senior Management must fully disclose all relevant information required by the ISSC in a transparent, accurate and timely manner.
7.4 The Senior Management shall provide the ISSC with financial and human resources that are commensurate with the Company size and the nature of its business.
7.5 The Senior Management must:
a. facilitate work of the Internal Shari’ah Control Division, Internal Shari’ah Audit Division and External Shari’ah Audit (if applicable),
b. ascertain that the Shari’ah auditors are not obstructed in their work,
c. enable Shari’ah auditors to access information or staff, from all different levels.
7.6 The Senior Management is responsible to establish sufficient knowledge regarding the compliance with Islamic Shari’ah Provisions in the Company.
7.7 The Senior Management must report to the Board regarding Company’s compliance with Islamic Shari’ah Provisions in all of its businesses, activities, policies, internal regulations, and code of conduct.
Article (8) Internal Shari’ah Supervision Committee
Membership, Appointment and Composition
8.1 The Board shall nominate the members of the ISSC, and send the member’s appointment request to the HSA for approval prior to presenting its nomination to the general assembly.
8.2 The Company’s general assembly has the authority to appoint the ISSC members based on the Board’s nomination and after the HSA and the Central Bank’s approval.
8.3 The composition of ISSC members in a Company must not be less than (3) three members that meet the fit and proper criteria (as prescribed in this Standard).
8.4 Emirati members in the ISSC must not be less than one third.
8.5 The membership of each member in the ISSC is subject to the following:
a. must not exceed three ISSC memberships in Takaful Insurance Companies inside the UAE,
b. must not exceed a total of fifteen (15) ISSC (or equivalent committees) memberships in Islamic financial institutions and Takaful Insurance Companies inside and outside the UAE,
c. only one member of the Company’s ISSC may have more memberships than what is stated in Article (8.5/b).
8.6 The HSA may exempt UAE nationals from the Article (8.5) if appropriate.
8.7 If a position of ISSC member becomes vacant, at any time, and that causes lack of quorum (more than the half), the Board must nominate a substitute member and seek approval as per the process in Article (8.2).
However, if a position of ISSC member becomes vacant, at any time, and this leads to non-compliance with the Article (8.3) of this Standard, but it does not breach the quorum, the Board may appoint a member after obtaining approvals of the HSA and the Central Bank on the appointment. It is not required in this case to hold the general assembly for the appointment provided that the appointment is tabled to the general assembly for final approval in its next meeting.
8.8 The term of office for ISSC members shall be specified in the Company’s engagement letter with a minimum of three years, and may be renewed for a similar period based on the Board’s recommendation and after obtaining approvals of the HSA and the Central Bank, and presenting the same to the general assembly.
The engagement letter must also specify the responsibilities of the ISSC members and their remuneration. The remuneration must not be linked to the performance of the ISSC members. Alongside the engagement letter, the Company must attach the ISSC charter.
8.9 The appointment of an ISSC member is valid for the said period, stated in Article (8.8), without the need to approach the HSA and general assembly for approvals every year. The approvals are required only in the following cases:
a. First time appointment of the ISSC member/s; and
b. Renewal of the appointment of the ISSC member/s for a similar period (three years).
8.10 The ISSC member must not serve the same Company as ISSC member for more than twelve years consecutively from the date of issuance of this Standard. The calculation of term period shall be restarted if membership is suspended for three years.
Fit and Proper
8.11 Member of the ISSC must:
a. be a Muslim individual (not a company);
b. hold a bachelor degree (as a minimum) in Islamic Shari’ah, particularly in jurisprudence of financial transactions, from a university that is acknowledged in Shari’ah studies, or have a minimum of 10 years’ experience in Fatwas issuance related to jurisprudence of financial transactions;
c. have proven competence and expertise, especially in jurisprudence of financial transactions;
d. have a strong comprehension of insurance in general and Takaful Insurance in particular, and should have worked in the spectrum of Islamic finance and/or Shari’ah supervision for a minimum of ten (10) years whether in direct employment or advisory level, or at least fifteen (15) years of post-graduation experience in teaching and scientific research related to jurisprudence of financial transactions and Takaful Insurance;
e. have good knowledge of the legal and supervisory framework related to financial and insurance activities in the UAE;
f. be excellent in Arabic, and preferably to have good knowledge of English; and
g. have good conduct and behavior, particularly with regard to credibility, integrity, and reputation in professional and financial transactions.
8.12 HSA may exempt UAE candidates from some of the clauses stated in Article (8.11) that would not impair their competence in performing their duties, provided that the candidate commits to the development and training required by the HSA.
Termination or Resignation of ISSC Member
8.13 Termination or resignation of ISSC members requires a no-objection from the HSA and the Central Bank, before being presented to the general assembly for approval.
8.14 The request must clarify the reasons for termination or resignation of the ISSC member.
Responsibilities of ISSC
8.15 The ISSC undertakes Shari’ah supervision of all businesses, activities, products, services, investments, contracts, documents, and code of conducts of the Company.
The ISSC issues resolutions and Shari’ah Fatwas that are binding upon the Company. The members of the ISSC are accountable for the resolutions and Fatwas they issue to the Company, and their compliance with the standards and resolutions issued by the HSA.
8.16 The ISSC must monitor, through the Internal Shari’ah Control Division and Internal Shari’ah Audit Division, the Company’s compliance with Islamic Shari’ah Provisions.
8.17 The ISSC must hold at least four meetings per year, and at least one meeting per year with the Company's Board, in accordance to the format charter approved by the HSA.
8.18 The ISSC shall decide on Shari’ah matters that relate to all businesses and activities of the Company, including its policies, internal regulations and code of conduct, and this includes carrying out the following responsibilities:
a. Reviewing the Takaful Insurance operating model, underlying contracts and supporting materials (e.g. underwriting and claims settlement manual/guidelines etc.).
b. Reviewing and approving the policy and procedures that govern Takaful Insurance Accounts (e.g. segregation of accounts and transparent financial resources flow between the accounts etc.), surplus distribution, and deficit coverage
c. Reviewing and approving the Company’s products, services and marketing materials.
d. Reviewing and approving the investment policy and the Shari’ah screening criteria to ensure the compliance of the investment activities in both shareholders’ accounts and Participants’ Accounts, with the Islamic Shari’ah Provisions.
e. Reviewing and approving the Retakaful agreements concluded by the Company to ensure their compliance with the Islamic Shari’ah Provisions.
f. Setting controls for ceding to conventional reinsurance on an exceptional basis, and the permission to add the revenues from the conventional Reinsurance to the Participants’ Account.
g. Setting controls for co-insurance with the conventional insurance companies.
h. Reviewing the Zakat calculation and specifying the amount of Zakat due on each share of the Company.
i. Reviewing the charity account before granting the approval for disposal.
j. Reviewing the financial statements of the Company to ensure compliance with Islamic Shari’ah provisions.
k. Preparing an annual Shari’ah report.
l. Continuous monitoring the Company's business and activities, through Internal Shari’ah Control Division and Internal Shari’ah Audit Division, in terms of its compliance with the Islamic Shari’ah Provisions.
8.19 In fulfilling its responsibilities, the ISSC may engage the experts and consultants with appropriate expertise in the relevant fields (e.g. insurance, law, accountancy and investment management) as required. The said experts and consultants may attend and contribute to ISSC meetings without voting on the Fatwa or resolution.
8.20 In case a Shari’ah non-compliance issue is identified, the ISSC must review and approve:
a. remedial measures, if such remediation is feasible.
b. the treatment required by Shari’ah for the outcome of the Shari’ah non-compliance issue if the remediation is not feasible.
c. preventive measures to avoid reoccurrence of such issues.
Reporting the above to the Company’s Board or its relevant committee. If the Company fails to address the proposed remedial action, the ISSC must report it to the HSA or the Central Bank.
8.21 The ISSC must review and approve all business operations, products, services investments, and financial securities that the Company executes, issues, manages, promotes, or offers to its customers (Participants and potential Participants) in order to ensure the compliance with the Islamic Shari’ah provisions. The approvals from other ISSCs, within or outside the UAE, in relation to the above, should not be used as a substitute to the ISSC approval.
Annual Shari’ah Report
8.22 The ISSC must issue an annual Shari’ah report stating the extent of Company’s compliance with Islamic Shari’ah Provisions. It should be published within the financial statement in the Company’s disclosures and other means possible, in accordance with this Standard and requirements issued by HSA.
8.23 The annual Shari’ah report of the ISSC must contain the main components specified by the HSA.
8.24 The annual Shari’ah report must be submitted to the HSA for review and approval prior to presenting the same at the general assembly.
Performance Assessment of ISSC
8.25 The Company in coordination with the Chairperson of the ISSC shall develop an assessment for ISSC based on the following aspects:
a. Shari’ah and scholarly aspects in terms of the member’s participation in decision making, discussions, and review of contracts, documents and reports submitted to the ISSC. This represents 70% of the assessment.
b. Organizational aspect in terms of members’ attendance of meetings and adherence to meeting schedule (dates and times), and other procedures prescribed by the ISSC charter, in line with this Standard. This represents 30% of the assessment.
The Company should inform each ISSC member upon appointment and at the beginning of each financial year about the assessment criteria.
8.26 At the end of the financial year, the Chairperson of the ISSC shall provide the HSA with a report on performance assessment taking into consideration the instructions issued by the Central Bank that relates to development and training of individuals who work in Shari’ah Supervision in Islamic financial institutions.
8.27 Based on the performance assessment, the Company may encourage the ISSC members to attend/participate to any relevant program/training that relates to global development in Takaful Insurance and Insurance.
ISSC Charter
8.28 The Company must adopt a charter for the ISSC that defines details of decision making process and their implementation, and sets adequate methods to fulfill ISSC’s responsibilities without prejudice to the requirements of this Standard, and in accordance to the template approved by the HSA.
ISSC Independence
8.29 ISSC members must be independent in conducting their responsibilities. The following controls and guidelines, as a minimum, must be observed to ensure the independence of ISSC members:
a. A member of the ISSC must not have a first-degree relative as member of a Company’s Board or Senior Management in the Company.
b. A member of the ISSC must not be an owner/shareholder of/in a company that provides consultancy or Shari’ah services to the Company where he/she acts as member of ISSC.
c. A member of the ISSC must not be employees of the Company or any of its Affiliates when serving as member of the ISSC and should not provide services to the Company outside the scope of the ISSC’s assigned functions.
d. A member of the ISSC shall not accept any allowance from the Company or its Affiliates other than the allowance he/she receives for being member of the ISSC, the allowance for attending ISSC meetings, and other matters related thereto. If a service or product is offered to a member of the ISSC, such member shall be treated as ordinary customers and shall not receive any preferential treatment.
e. A member of the ISSC or his/her first or second-degree relatives, shall not own a share equal to/or more than 5% of the Company.
f. A member of the ISSC must not hold controlling interests in companies’ shares and/or other investments in which the Takaful Insurance Accounts’ funds are invested in.
g. The entitlement to ISSC allowances shall not be conditional on achieving certain results, or linking it to the results of the services provided by the ISSC (conditional remuneration).
8.30 In case of conflict of interest, including non-compliance with Article (8.29), a member of the ISSC must do the following to resolve the said case:
a. disclose any conflict of interest cases, to the ISSC, related to his/her family members or business partners or companies he/she has interest in;
b. where there is a temporary conflict of interest, abstain from participating in the relevant discussion, decision or action; or
c. if the issue remains unresolved, the ISSC member with the issue of independence impairment must notify and report to the Company’s Senior Management in writing to take the necessary actions.
8.31 The Company must immediately notify the Central Bank if it becomes aware of any material information that may negatively affect the independence of any ISSC member.
Accessibility
8.32 The ISSC members have the right to access at any time all the records, contracts and documents of the Company, and it may request the clarifications it deems necessary to perform its responsibilities, and the Company’s Senior Management must provide such clarifications and information.
8.33 In the event that the Company fails to enable the ISSC to perform its responsibilities, the ISSC must state the same in a report and submit it to the Company’s Board or the Board’s audit committee. If the ISSC’s request has not been addressed, the ISSC must inform the Central Bank and the HSA.
Confidentiality
8.34 A member of the ISSC must not disclose Confidential Information of the Company unless such disclosure is required by the Central Bank or by law.
Consistency
8.35 The ISSC members should strive to achieve unanimity in relation to the resolutions and Fatwas. The ISSC shall not resort to majority vote unless members are unable to reach unanimity within a reasonable period.
8.36 In cases where disagreement arises over a Shari`ah opinion, between members of the ISSC, or disagreement between the ISSC and the Board, over the compliance or noncompliance of a particular matter with the provisions of Islamic Shari`ah, the disagreement shall be referred to the HSA, whose opinion on the matter shall be final.
Article (9) Internal Shari’ah Controls
9.1 The Company must establish effective internal Shari’ah controls comprising three lines of defense approach that are independent from each other, which includes:
a. the first line of defense, represented by the business line, which shall set clear policies, procedures, and controls, approved by the ISSC, for executing the business activities in a manner compliant with Islamic Shari’ah Provisions at all times.
b. the second line of defense, represented by the Internal Shari’ah Control Division, which undertakes the functions prescribed in Article (10) , and it shall not be organizationally part of any business division or reporting to it.
c. the third line of defense represented by Internal Shari’ah Audit Division, which undertakes Shari’ah audit and monitors compliance prescribed in Article (11), and it shall not be organizationally part of any business division or reporting to it.
9.2 The Company must provide sufficient financial and human resources that suit the size and nature of Company’s activities so that Internal Shari’ah Control Division and Internal Shari’ah Audit Division can carry out their work effectively and efficiently, in consultation with the ISSC.
9.3 The Internal Shari’ah Control Division and Internal Shari’ah Audit Division perform two different tasks, and must be separate from each other in terms of reporting and human resources, in accordance with the three lines of defense approach.
Article (10) Internal Shari’ah Control Division
10.1. Each Company shall have in place an Internal Shari’ah Control Division in its Shari’ah governance framework. This division ascertains Shari’ah compliance and supports the ISSC in its duties. It is comprised a number of employees that is commensurate with the size and the nature of the Company’s operations. The ISSC shall supervise the work of this division from the technical perspective.
10.2. The Company must have specified work procedures related to the Internal Shari’ah Control Division and it must carry out its duties in line with the said procedures.
Fit and Proper
10.3. The Company must appoint a head for the Internal Shari’ah Control Division, after obtaining the Central Bank’s approval, who shall report to the Board. The head of this division must:
a. be a Muslim;
b. have a university degree in Islamic Shari’ah, or relevant specializations;
c. have a professional certificate in Shari’ah supervision and/or Takaful Insurance from one of the organizations that supports Islamic finance like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the General Council for Islamic Banks And Financial Institutions (CIBAFI), or other recognized institutions that issue similar certifications. It is also preferable to have a professional certificate in insurance issued by a local or an international organization;
d. have an experience of ten (10) years, as a minimum, in the field of Shari’ah supervision in Islamic financial institutions, including at least five (5) years Shari’ah supervision in Takaful Insurance;
e. practice his/her duties on full-time basis, and it is not permissible to combine between the job of a head of the Internal Shari’ah Control Division and any other job in the Company;
f. have good conduct and behavior, where he/she must not have been sentenced by a court in crimes related to honor or honesty, or was convicted of offences and sentenced to imprisonment;
g. have excellent command of English and reasonable command of Arabic.
The Internal Shari’ah Control Functions
10.4. The Internal Shari’ah Control Division shall undertake the following functions:
Firstly: ISSC Secretariat Function
This function undertakes the following:
a. preparing, and organizing the meetings of the ISSC,
b. preparing and drafting the minutes of the meetings,
c. communicating the resolutions to the relevant functions of the Internal Shari’ah Control Division and Internal Shari’ah Audit Division in addition to other divisions in the Company,
d. following up with resolution implementation as per the follow-up list required by the ISSC,
e. filing resolutions and Fatwas, and
f. Following up administrative matters related to the ISSC.
Secondly: Shari’ah Consultations Function
This function provides consultation based on the ISSC’s Resolutions in regards to:
a. contracts, documents and other aspects related to the Company’s products and services, including products manual, policies, internal procedures,
b. Company’s Shari’ah related inquiries and issues,
c. marketing/advertising materials and publications,
d. customers complaints (related to the compliance with Islamic Shari’ah Provisions), and
e. other Shari’ah issues faced by the Company especially the ones related to Takaful Insurance operating model and products.
Thirdly: Shari’ah Research & Development Function
This function undertakes the following:
a. conducting research for related Shari’ah and procedural issues requested by the ISSC,
b. contributing, with other relevant divisions in the Company, to the development of products and formulation policies, procedures, and contracts, and
c. other areas of development in the Company.
Fourthly: Shari’ah Compliance Function
This function does not report to any other compliance function in the Company. It concerns with Shari’ah compliance and it is responsible to conduct the following:
a. performing regular Shari’ah monitoring and assessment on the Company’s businesses and activities to ensure Shari’ah compliance with resolutions, regulations, standards, which are issued by the Central Bank and the HSA,
b. ensure the first line of defense conducts the tasks in accordance with the approved procedures from the relevant entities, in particular the ISSC (e.g. segregation between the Participants' Accounts and the Shareholders’ accounts, the existence of a documented and approved mechanism for the distribution of surplus to the participants, deficit in Participants' Account is covered via Shari’ah compliant mechanisms), and
c. ensure the Company establishes a Zakat Fund.
The Shari’ah compliance function must not be outsourced to external entities.
Fifthly: Shari’ah Training Function
This function is responsible for the following:
a. conducting training for Company’s staff on those aspects of their duties related to Company’s compliance with Islamic Shari’ah Provisions,
b. qualifying employees with the information and skills that they need based on the nature of work of each employee, to ascertain that the Company complies with Islamic Shari’ah Provisions at all times, and
c. assisting the Senior Management in implementing a continuous professional Shari’ah-related training and development program.
10.5. The Internal Shari’ah Control Division must not issue resolutions or Fatwas. Instead, the Internal Shari’ah Control Division must refer back to the ISSC in all matters that it considers and all tasks it carries out, unless there were resolutions or Fatwas issued for the matters before.
10.6. Internal Shari’ah Control Division staff shall not undertake any executive powers or responsibilities related to the businesses and activities that may be monitored by themselves.
Reporting Lines
10.7. The Shari’ah compliance report must be submitted to the ISSC to look at the technical Shari’ah matters prior to submitting the same to the chief executive officer. The Shari’ah compliance function must have the right for direct access to the Board.
10.8. The duties of the Shari’ah compliance function must complement the compliance function of the Company. This function must have a dotted reporting line to the head of compliance of the Company to submit reports regarding the compliance with Islamic Shari’ah Provisions for information. The head of compliance shall not have any authority or responsibility related to the Shari’ah Compliance function.
10.9. In matters related to promotions, bonus, performance assessment, and termination, the Internal Shari’ah Control Division’s head and staff shall be carried out by the Board or its committees in consultation with the ISSC and it must not be carried out by the Senior Management.
Article (11) Internal Shari’ah Audit Division
11.1. The Internal Shari’ah Audit Division undertakes Shari’ah audit and monitors Company’s compliance with Islamic Shari’ah Provisions. This is conducted through an annual plan to collect and assess evidence of Company’s activities and transactions to ensure their compliance with Islamic Shari’ah Provisions and ensure the adequacy of internal procedures and Shari’ah governance framework.
11.2. Within the Shari’ah governance framework, the Company must have specified work procedures related to Internal Shari’ah Audit Division.
Fit and Proper
11.3. The Company must appoint a head for Internal Shari’ah Audit Division2, after obtaining the Central Bank’s approval, who shall report to the Board. The head of this division must:
a. be a Muslim;
b. have a university degree in Islamic Shari’ah, or relevant specializations;
c. have a professional certificate in Shari’ah supervision and/or Takaful Insurance from one of the organizations that supports Islamic finance like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the General Council for Islamic Banks And Financial Institutions (CIBAFI), or other recognized institutions that issue similar certifications. It is also preferable to have a professional certificate in insurance issued by a local or an international organization;
d. have an experience of ten (10) years, as a minimum, in the field of Shari’ah supervision in Islamic financial institutions, including at least five (5) years Shari’ah Control in Takaful Insurance;
e. practice his/her duties on full-time basis, and it is not permissible to combine between the job of a head of Internal Shari’ah Audit Division and any other job in the Company;
f. have good conduct and behavior and not have been sentenced by a court in crimes related to honor or honesty, or was convicted of offences and sentenced to imprisonment;
g. have excellent command of English and reasonable command of Arabic.
11.4. The internal Shari’ah auditor must meet the requirements mentioned in Article (11.3), except for the condition of experience; where the internal Shari’ah auditor must have a minimum practical experience of five (5) years in Internal Shari’ah Audit.
The Internal Shari’ah Audit Functions
11.5. Internal Shari’ah Audit Division shall carry out the following functions:
a. Development of Internal Shari’ah Audit manual, and to undertake review and update the manual on a regular basis,
b. Prepare the annual Shari’ah audit plan, which must be approved by the ISSC in coordination with the Audit Committee. This should adopt the best practices in this regard (for example, the risk based Shari’ah Audit),
c. Undertake assessment of businesses and activities of the Company to ensure the Company’s Shari’ah compliance with the requirements issued by the Central Bank, resolutions of the HSA, and resolutions of the ISSC,
d. Undertake assessment of effectiveness of the internal Shari’ah supervision to ensure that the Company’s compliance with Islamic Shari’ah Provisions,
e. Ensure that the products and services, forms, contracts, agreements, the execution procedures of activities and transactions, and other related matters are approved by ISSC,
f. Conduct regular field audit to the Company’s internal and external divisions, and branches (if any),
g. Coordinate and exchange their findings and reports with the internal audit division,
h. Prepare internal audit forms and programs required for conducting inspection, and to verify and document the sound execution of transactions in light of the HSA’s Resolutions and ISSC’s Resolutions,
i. Conduct meetings with the Company’s divisions to discuss the Shari’ah observations and require setting appropriate measures to avoid such issues, in cooperation with relevant entities inside the Company, and
j. Prepare a report of the outcomes of the Internal Shari’ah Audit.
11.6. Internal Shari’ah Audit Division staff shall not undertake any executive powers or responsibilities related to the businesses, activities, and contracts that may be audited by them.
11.7. The Internal Shari’ah Audit must not be outsourced to external entities. The Internal Shari’ah Audit division may be assisted by additional external bodies after the approval of the Central Bank.
Reporting Lines
11.8. The head of Internal Shari’ah Audit Division shall report to the Board. The head of Internal Shari’ah Audit Division shall submit the reports to the ISSC for resolutions on Shari’ah matters stated in his/her reports. He/she shall then report with the ISSC resolutions to the Audit Committee for the implementation of their content and follow-up of their requirements.
11.9. The Internal Shari’ah Audit Division submits its reports to the ISSC and to the Audit Committee biannually (at minimum3).
11.10. In matters related to promotions, bonus, performance assessment, and termination, Internal Shari’ah Audit Division’s head and staff shall not report to the Senior Management they are auditing, but to the Board, through the Audit Committee, and in consultation with the ISSC.
2 In the event of not appointing a head for Internal Shari’ah Audit Division, the Company shall appoint a trainee auditor or more (depending on the Company’s size) and he/she meets the minimum requirements for internal Shari’ah auditor (not requirements for a head) to be trained in Shari’ah auditing. After five years of the issuance of this Standard, the name of trainee auditor shall be submitted to the Central Bank for approval as a head of this division. At the same time, the Company shall appoint an external Shari’ah auditing company to perform the responsibilities of the head of Internal Shari’ah Audit Division with the participation of the trainee Shari’ah auditor.
3 The frequency of reports submitted by the Internal Shari’ah Audit division depends on the size and nature of the Company’s works, which might require submitting more reports.Article (12) External Shari’ah Audit
12.1 The Company may appoint a specialized external body to conduct External Shari’ah Audit. This task must be undertaken by an independent external Shari’ah audit company approved by the Central Bank (“External Shari’ah Auditor”).
12.2. The External Shari’ah Auditor shall assess compliance of the Company with the Islamic Shari’ah Provisions in light of inter alia the following:
a. regulations and standards issued by the Central Bank from time to time; and
b. HSA’s Resolutions and ISSC’s Resolutions.
He/she must meet the ISSC members to discuss the findings, before preparing the report.
12.3. The External Shari’ah Auditor shall prepare a report for the Company’s Board and ISSC, giving their opinion on:
a. the status of Shari’ah compliance of the Company;
b. the risks associated with the Shari’ah non-compliance;
c. the capacity and quality of the entity’s risk management system to measure, manage and mitigate the Shari’ah Non-Compliance Risks; and
d. any other issues deemed significant in External Shari’ah Auditor with respect to Islamic Shari’ah Provisions.
Article (13) Cancelation of the Previous Decision
This Standard shall cancel and supersede the Insurance Authority Decision No. (50) of 2019 Concerning Enhancing the Shari’a Controller’s Role in Takaful Insurance Companies Operating in the State.
Article (14) Interpretation of Standard
The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Standard.
Article (15) Compliance with the Standard
15.1. The Company must set a Shari’ah governance framework in accordance to this Standard within 180 days from the date of issuing this Standard. The same must be submitted to the Central Bank for approval.
15.2. The Company must comply fully with the requirements of this Standard within one year from publishing this Standard.