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Article (6) IFI's Responsibility

STA-LFI-GOV-2020 Effective from 21/4/2020

The Board

  1. 6.1 IFI's Board is ultimately responsible for IFI's compliance with Islamic Shari'ah. The Board is expected to be aware of Shari'ah non-compliance risk and its potential impact on the IFI. Accordingly, the Board is responsible for establishing and implementing a Shari'ah governance framework that is commensurate with the size and complexity of the operations of the IFI and its risk appetite, to ensure the IFI's compliance with Islamic Shari'ah. The Shari'ah governance framework should incorporate the three lines of defense approach comprising the business line, the support and control functions, and internal Shari'ah audit function.
     
  2. 6.2 Members of the Board must nominate ISSC members to the general assembly for the establishment of ISSC.
     
  3. 6.3 The Board must, in coordination with the ISSC, ensure the development, approval and implementation of internal policies related to the IFI compliance with Islamic Shari'ah.
     
  4. 6.4 The Board must maintain effective communication with the ISSC. Meetings must be held to discuss issues pertaining to Shari'ah compliance, with at least one meeting per financial year.
     
  5. 6.5 The Board must refer to the ISSC for all Shari'ah matters related to IFI activities, operations and code of conduct.
     
  6. 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 sharing it with shareholders at the general assembly.

Board's Risk Committee

  1. 6.7 The Board's Risk Committee ("Risk Committee") must supervise and monitor management of Shari'ah non-compliance risk, and set controls in relation to this type of risk, in consultation with ISSC and through the internal Shari'ah control division or section.
     
  2. 6.8 The Risk Committee is responsible to review and approve the establishment of framework for managing Shari'ah non-compliance risk as part of the overall risk management framework of the IFI, and must oversee its implementation by the Senior Management.
     
  3. 6.9 The Risk Committee must ensure there is an information system that enables IFI to measure, assess and report Shari'ah non-compliance risk. Reports must be provided on a timely manner to the Board and Senior Management, in formats suitable for their use and understanding.

Board's Audit Committee

  1. 6.10 The Board's Audit Committee ('Audit Committee') must:
     
    1. Evaluate the effectiveness of IFI's policies (approved by ISSC) designed to monitor compliance of the IFI with Islamic Shari'ah.
       
    2. Assess the effectiveness and adequacy of internal Shari'ah audit and its contribution in ensuring IFI's compliance with Islamic Shari'ah. 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 or section to ensure that all necessary measures have been undertaken.
      • - Facilitate the work of the internal Shari'ah audit division or section.
      • - Hold regular meetings with the head of internal Shari'ah audit division or section twice a year, at minimum.
         
    3. 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 one meeting per financial year.

     
  2. 6.11 It is recommended that the Audit Committee invite a member of the ISSC to attend the meetings when discussing the internal Shari'ah audit report to ensure compliance of the IFI with the resolution of the ISSC concerning the report. The Audit Committee and the member of ISSC are not authorized to change the ISSC's resolution in this regard.

Senior Management

  1. 6.12 The Senior Management must execute and manage the IFI's activities and businesses in compliance with Islamic Shari'ah.
     
  2. 6.13 The Senior Management must report to the Board regarding IFI's compliance with Islamic Shari'ah in all of its activities, operations, policies, internal regulations, and code of conduct.
     
  3. 6.14 The Senior Management is responsible before the Board for:
    1. submitting Shari'ah matters related to all IFI's businesses and activities, including its policies, internal regulations, code of conduct, all onshore/offshore transactions, services and products to ISSC, and should not consider approval of any of the Group's Shari'ah supervision committees (or equivalent committees) outside the country as substitution to approval of the ISSC,
    2. ensuring implementation of the ISSC's fatwas and resolutions.

     
  4. 6.15 The Senior Management must fully disclose all relevant information required by the ISSC in a transparent, accurate and timely manner.
     
  5. 6.16 The senior management shall provide the ISSC with financial and human resources that are commensurate with the IFI size and the nature of its business.
     
  6. 6.17 The Senior Management must:
    • - facilitate work of internal Shari'ah audit and external Shari'ah audit,
    • - ascertain that the Shari'ah auditors are not obstructed in their work,
    • - enable Shari'ah auditors to access information or staff, from all different levels.

     
  7. 6.18 The Senior Management is responsible to establish sufficient knowledge regarding the Compliance with Islamic Shari'ah requirements and the culture of Islamic Shari'ah compliance banking in the IFI.