COMMERCE DEPARTMENT

DIPLOMA IN ISLAMIC BANKING AND FINANCE

DPD50163: ISLAMIC FINANCIAL SERVICES, LEGAL AND GOVERNANCE

TITLE: EXECUTIVE SUMMARY OF IFSB

PREPARED BY:

NO. STUDENT’S NAME REGISTRATION

NUMBER

4. PUTERI NURSYAMIERA NAJLAA’ BINTI 23DIB20F1025

NORSHAMSULIZWAN

PREPARED FOR:

ENCIK ZUL AIZAT BIN HAMDAN

SEMESTER 5/ SESSION 1 2022/2023

 HISTORY
The company, based in Kuala Lumpur, was officially inaugurated on March 3, 2002, and began
operations on March 10, 2003. It acts as an international standard-setting body of regulatory
and supervisory agencies with a vested interest in ensuring the soundness and stability of the
Islamic financial services industry, which is broadly defined to include banking, capital
markets, and insurance. The IFSB promotes the development of a prudent and transparent
Islamic financial services industry by introducing new or adapting existing international
standards that are consistent with Sharî'ah principles and recommending their adoption.

To that end, the IFSB's work complements that of the Basel Committee on Banking
Supervision, the International Organization of Securities Commissions, and the International
Association of Insurance Supervisors. As of December 2019, the IFSB's 184 members included
78 regulatory and supervisory authorities, 9 international intergovernmental organisations, and
97 market participants (financial institutions, professional firms, industry associations, and
stock exchanges) from 57 jurisdictions.

OBJECTIVES

Firstly, is to encourage the establishment of a responsible and open Islamic financial services
sector by developing new standards or revising current ones to make them Sharî'ah-compliant
and advocating for their implementation. Secondly, is to develop for the Islamic financial
services sector as well as to offer advice on the efficient supervision and regulation of
institutions delivering Islamic financial products. Thirdly, is to exchange information and work
together with organisations that are presently formulating guidelines for the soundness and
stability of both global financial and monetary systems as well as those of the member nations.

FUNCTION

IFSB’s objectives is to encourages Islamic banking's stability and soundness. Besides that, is
to provide global prudential norms and guiding principles in a variety financial area, including
transparency, risk management, adequate capital, and corporate governance. Lastly, achieve its
goals through creating and encouraging the use of international, prudential, and supervisory
standards as well as other programmes that promote collaboration and knowledge sharing.
 ROLES

The roles of IFSB are to promote the industry of Islamic Financial Services' resiliency and
stability. Through the adoption of brand-new or updated international standards that are
compliant with shari'ah principles, the IFSB encourages the growth of a responsible and open
Islamic financial services sector. It also creating prudential standards with the goal of resolving
concerns unique to Islamic banking and identifying the gaps in current regulatory and
prudential requirements. The IFSB is a significant catalyst that will help increase the ability of
ifs to withstand shocks in the global financial system and reinforce the groundwork for the
advancement of the global islamic financial landscape.

GUIDELINES

Risk Management (IFSB 1)

The necessity to adhere to Shariah laws and values, particularly the ban on making profits
without taking any risks, is the key component of IIFSs' activities. However, as part of its
fiduciary obligation, IIFS must use Shariah-compliant risk reduction strategies whenever
possible.

Capital Adequacy (IFSB 2)

Capital Adequacy Standard (hence referred to collectively as the Standard) for Institutions
(other than Insurance Institutions) Offering Only Islamic Financial Services (IIFS). The term
"IIFS," as used in this Standard, refers to financial institutions that raise money through
deposits and investment accounts in conformity with Shariah laws and principles and invest it
using Shariah-compliant financing and investment vehicles.

Corporate Governance (IFSB 3)

The Guiding Principles are intended to assist IIFS in identifying areas where suitable
governance structures and processes are required and to offer best practises in resolving these
concerns. To help IIFS comprehend the goals and justifications behind each of the Guiding
Principles, an annotation is attached as a source to this page.
Transparency And Market Discipline (IFSB 4)

To define a set of fundamental principles and procedures that institutions providing Islamic
financial services (IIFS)1 must adhere to when disclosing information in order to achieve
transparency and encourage market discipline with relation to these institutions. This standard
is intended to IIFS, as well as to the organisations' regulatory bodies and other key decision-
makers.

Supervisory Review Process (IFSB 5)

To give authorities overseeing institutions that only provide Islamic financial services (IIFS)
direction on essential components of the supervisory review process (a) Takaful institutions
and (b) Islamic mutual funds). The Islamic Financial Services Board (IFSB) has expressed its
opinions in this document regarding (a) the practises that regulatory agencies should follow
and (b) the IFSB standards that the IIFS are expected to abide by.

TECHNICAL NOTES

Development Of Islamic Money Market (TN 1)

IIFS should provide supervisory guidance and incentives for effective liquidity risk and asset
liability management, while also encouraging privately issued Islamic money market securities
and developing efficient trading arrangements and the associated market microstructure for
Islamic money and government finance instruments.

Stress Testing (TN2)

To assist IIFS in the design and simulation of solvency and liquidity stress tests, including
guidance on establishing macro financial links, running scenarios with various assumptions
and stress parameters, and to emphasise the unique characteristics of risk exposures in IIFS and
how they must be captured in stress-testing exercises.
Financial Inclusion and Islamic Finance (TN 3)

To provide guidance to RSAs on the application of the proportionality principle so that the
benefits of regulation and supervision can be balanced against the risks and costs, and to
provide international benchmark guidelines on regulatory and supervisory policies to support
financial inclusion initiatives in the IFSIT to think about a way to combine commercial IFSI
with several Islamic social finance models (such sadaqah and waqf, each based on specific
Shariah requirements).

GUIDELINES NOTES

Gn-1 Recognition of Ratings by External Credit Assessment Institutions (Ecais) On Sharī`Ah-

Compliant Financial Instruments is gives institutions that provide only Islamic financial
services (IIFS) a common foundation, with the exception of Islamic insurance (takful)
institutions and Islamic mutual funds, whose capital structures and assets may be different from
those of the financial institutions addressed in this document.

Gn-2 Risk Management and Capital Adequacy Standards: Commodity Murābahah

Transactions is designed for Shar'ah-compliant interbank transactions, allowing IIFS with an
excess of liquid funds to invest those funds with other IIFS with a shortage of those funds (or
vice versa).

Gn-3 Guidance Note on The Practice of Smoothing the Profits Payout to Investment Account
Holders is anticipated that IIFS may use various types of smoothing depending on the level of
competitive pressures posed by their market competitors, whether they are present in
jurisdictions with a fully developed Islamic banking environment or with a dual banking
environment (in which both IIFS and conventional financial institutions coexist).

Gn-4 The Determination of Alpha in The Capital Adequacy Ratio for Institutions (Other Than
Insurance Institutions) Offering Only Islamic Financial Services is the method developed in
the GN may be similarly relevant to restricted profit-sharing investment accounts (RPSIA) and
other types of investment contracts, like Mushrakah and Waklah, depending on the smoothing
procedures that are common in each jurisdiction.