1.The Board offering Islamic financial services must ensure that the comprehensive approach to risk management ensures compliance with Sharī’ah provisions in addition to meeting the other requirements of the Regulation and Standards. The risk governance framework must specifically identify and address for each relevant risk any elements arising from the use of Islamic financial instruments, as well as risks specific to Islamic instruments and agreements. At a minimum, the risk governance framework of a bank offering Islamic financial services must address:
a.Identifying, monitoring and mitigating potential credit risk exposures that may arise at different stages of the various financing agreements;
b.Requiring a due diligence review in respect of counterparties prior to deciding on the choice of an appropriate Islamic financing instrument;
c.Considering separately and on an overall basis liquidity exposures with respect to each category of current account, unrestricted and restricted investment accounts;
d.Ensuring adequate recourse to Sharī’ah-compliant funds to mitigate liquidity risk;
e.Identifying and managing equity investment risk including appropriate and consistent valuation methodologies agreed between the bank and its equity investment partners and exit strategies with respect to equity investment activities;
f.Ensuring compliance with Sharī’ah provisions to mitigate the risk of income having to be donated to charity rather than recognized;
g.Implementing a comprehensive approach to assessing and reporting on the potential impacts of market factors affecting rates of returns on assets relative to the expected rates of return to investment account holders (rate of return risk);
h.Using appropriate measures to safeguard the interests of all fund providers which will include but is not limited to ensuring that when investor funds are comingled with the bank’s funds, the basis for asset, revenue, expense and profit allocations are established, applied and reported in a manner consistent with the bank’s fiduciary responsibilities; and
i.Ensuring that risks arising from the provision of Islamic financial services are appropriately captured in the bank's forward-looking stress-testing program.