By Andrew White
EXCLUSIVE: Islamic finance chief says committee will be launched in H1 2010.
A new watchdog is to be launched to investigate suspected violations of Sharia-compliance among Islamic finance products, Arabian Business has learned.
The committee will be launched in the first half of 2010, and is being established by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the international standard-setting organisation for Islamic finance.
The body will advise institutions that have broken Sharia laws unintentionally on how to correct their mistake, and report to the authorities companies that refuse to comply.
“We believe that there are violations in the market, whether through a lack of practice, a lack of good knowledge, or unintentional mistakes,” Dr Mohamad Nedal Alchaar, secretary general of AAOIFI, told Arabian Business.
“There needs to be an authority in the market making sure that products adhere to the principles of Sharia, as one of the criteria of a good system is that you have checks on that system.”
The Islamic finance industry has grown hugely over the last decade, and Islamic financial assets are expected to surpass $1trn globally in 2010.
The new committee will comprise as many as eight members, including bankers, accountants, auditors, lawyers, and “more than one” Islamic scholar.
“We are looking at the mechanisms for screening products, and we will be up and running by mid-year,” said Dr Alchaar. “All banks are offering products, and we will be looking at them to establish whether they meet our standards.
“It will be amicable, as we are the gatekeepers of this industry, and we want to work through negotiation,” he added. “Only if that does not work, will we go through the authorities.”
Last week, the AAOIFI clarified industry regulations in two new reports.
The Sharia Standards 2010 publication contained a total of 41 Sharia standards including stipulations for gharar (uncertainty) in financial transactions, arbitration, waqf (endowment), ijarah (leasing) on Labour, zakah (alms), contingent obligations, credit facilities, online financial transactions, rahn (pledge), investment accounts and profit distribution, and Islamic reinsurance.
Another publication, Accounting, Auditing and Governance Standards 2010, contained a total of 40 standards covering the areas of accounting, auditing, ethics, and governance for Islamic financial institutions.