Malaysia International Islamic Financial Centre (MIFC) : The IFSB Successfully Organises a Regulators’ Forum at GIFF 5.0

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Press Release

13 May | Friday

The IFSB Successfully Organises a Regulators’ Forum at GIFF 5.0

Kuala Lumpur, 12 May 2016 - The Islamic Financial Services Board (IFSB) has successfully organised a Regulators’ Forum themed, “Islamic Finance in 2016 and Beyond: Challenges, Opportunities and Evolving Regulatory Focus” on 10 May 2016 in Kuala Lumpur, Malaysia. This Forum was held in conjunction with
the Global Islamic Finance Forum 5.0, organised by the Association of Islamic Banking Institutions Malaysia (AIBIM) on 10 – 12 May 2016 at Sasana Kijang, Bank Negara Malaysia.

The half-day Regulators’ Forum, attended by over 100 delegates from across the world, was conducted in an interactive environment which enabled speakers and participants to explore the implications on the Islamic financial services industry (IFSI) from evolving global regulatory reformed agenda while raising awareness on the emerging challenges in the resilience and stability of the IFSI. The IFSB’s Islamic Financial Services IndustryStability Report 2016, the fourth edition in this series, was also launched by H.E. Dr. Hendar, Deputy Governor of Bank of Indonesia during the Forum.

In his Keynote Address, H.E. Dr. Hendar, expressed his appreciation on the progress made by the global IFSI in many frontiers. Noting the uncertainty in the global economy propelled by the falling economic growth rates and depressed energy and commodities prices, H.E. Dr. Hendar observed that the Islamic finance sector was able to preserve its overall worth on the back of sustained resilience in the Islamic banking and takaful sectors. He highlighted the need for IFSI stakeholders to focus on early detection of vulnerabilities in order to withstand any future economic crisis; in this regard he commended the IFSB’s annual IFSI Stability Report series that provided a holistic analysis of the trends, developments and imminent risks (if any) to the stability of the global IFSI. As a member of the G20 and also a founding member of the IFSB, he expressed Indonesia’s commitment to implement international standards, including for the IFSI. H.E. Dr. Hendar also reiterated the importance of the global financial inclusion agenda and discussed how models of the Islamic economy, such as waqf, can offer useful solutions for poverty alleviation. He also stressed the need for greater focus and proactivity among Islamic finance stakeholders with regard the global technological revolution where alternative models, such as crowdfunds are taking root.

The Secretary-General of the IFSB, Jaseem Ahmed, in his Opening Remarks informed the audience that, in line with the international developments, the IFSB has responded with a series of next-generation prudential standards and guiding principles that align global regulatory developments with the specificities of Islamic finance; while also assisting national financial sector supervisors to provide a level playing field for IIFS vis-à-vis their conventional counterparts. He referred to the IFSB’s Work Plan in recent years which has placed a high priority on putting in place standards encompassing higher and better quality capital and liquidity buffers, and an increased focus on macroprudential regulation. Particularly, he referred to the issuance of IFSB-17 Core Principles for Islamic Finance Regulation (Banking Segment) and GN-6 Guidance Note on Quantitative Measures for Liquidity Risk Management in Institutions offering Islamic Financial Services (IIFS). He also informed the audience about the IFSB’s upcoming Technical Note-2 on Stress Testing for IIFS,which aims to provide regulatory and supervisory authorities and market players of the Islamic banking industry with appropriate and adequate technical guidance to develop, conduct and assess stress tests. Finally, he discussed the key findings of the IFSB’s IFSI Stability Report 2016 and
called for a more coordinated action by IFSI stakeholders to address emerging issues in the industry, such as the need for Shariah-compliant
high-quality liquid assets and capital instruments.

The first session of the Forum titled “Outlook and Opportunities of IFSI in 2016 and Beyond: Sustaining IFSI Growth and Resilience Amid Challenges” was chaired by Rushdi Siddiqui, Co-Founder and Chief Executive Officer of Zilzar, USA. He started the session with the paradigm question on whether the rapid growth of Islamic finance is coming to an end on account of external shocks, and proceeded to invite the panellists to discuss how well developed were early warning signals in the industry to measure and mitigate risks through, for instance stress tests and established financial safety-nets, which are critical to enhance consumer confidence. The first panellist Raja Teh Maimunah, Managing Director & Chief Executive Officer, Hong Leong Islamic Bank, Malaysia noted that Islamic banks in Malaysia are already subject to recent regulations e.g. Basel III and hence, are already focusing on resilience by meeting robust capital and liquidity requirements. She however raised awareness that Islamic banks need to focus on differentiating themselves in terms of consumer offerings to sustain their growth and expansion.

The second panellist, Ashar Nazim, Partner, Financial Services, Head of Global Islamic Banking Center, Ernst & Young, Bahrain stressed that Islamic banks need to adopt a more futuristic strategy and be engaged in exciting innovations. He highlighted that there is a major asset origination challenge in Islamic finance as roughly an estimated USD 400 billion to USD 500 billion is mobilised from Shariah sensitive customers and then brokered into the conventional financial system using various contracts. He also questioned the rise of FINTECH which has been adopted in IFSI and the preparedness of the regulators in the changing dynamics of the industry. Meanwhile, the third panellist, Peter Kruschel, Director, Banking Supervision, Federal Financial Supervisory Authority (BaFin), Germany shared the experience of Germany where the first Islamic bank started operations in July 2015. In his view, an accommodative regulatory regime needs to be put in place in Europe to thrive profitability of the Islamic banking business. He noted that there is a lot of potential for Islamic capital market in Europe and in this regard, sukuk is actively pursued by some European governments.

The second session, themed “Global Regulatory Reforms: The Islamic Finance Response” was chaired by Mushtak Parker, Editor of the Islamic Banker Magazine, UK, who began the session by framing the background on the post-2008 crisis reform agenda led by the G20. He credited the work done by the IFSB in terms of developing standards, guidance and technical notes tocorrespondingly help the regulatory development for the IFSI. The first panellist for this session, Badlisyah Abdul Ghani, President, Chartered
Institute of Islamic Finance Professionals, Malaysia suggested that any effective and efficient regulatory framework should most importantly create value for Islamic banks. He noted that Islamic banks are still not sufficiently facilitated to conduct cross-border business as accommodative regulations for Islamic finance do not exist in many jurisdictions. He added that other countries can benefit from Malaysia’s four decades of
Islamic finance experience and develop suitable frameworks to implement in their jurisdictions.

The second panellist, Basheer Ahmad, Senior Manager, Markets Division, Dubai Financial Services Authority (DFSA), UAE, spoke about the regulatory framework at the DFSA, which has implemented many of the IFSB’s Standards. He highlighted the need for more efforts by standard-setting bodies to address remaining issues; for instance, the Shariah view with regard to the point of an Islamic banks’ non-viability which will trigger the Basel III / FSB-15 Additional Tier-1 and Tier-2 instruments to absorb losses. Finally the third panellist, Mohd Sobri Mansor, Deputy General Manager, Policy & International Division, Malaysia Deposit Insurance Corporation, shared his perspectives on the critical role of deposit insurance schemes that have
gained prominence following the global financial crisis. In his view, Shariah-compliant deposit insurance schemes provide an ideal opportunity to strengthen the resilience of Islamic banks since they help in enhancing depositors’ confidence. He noted these should be put in place, at least, in the 11 countries which the IFSB’s IFSI Stability Report 2016 has identified to be systemically important.

The IFSB’s Regulators’ Forum was generally appreciated as it encouraged broad interaction and discussion between delegates on new and pertinent issues, with a view to finding greater harmonisation within the industry.