Shariah governance is integral to Islamic financial system stability. The institutionalisation of a sound Shariah governance framework strengthens public confidence in the integrity, management and business operations of the Islamic financial institutions.
The Shariah Governance Framework for Islamic Financial Institutions introduced in 2011 has played a critical role in supporting robust and orderly developments of the Islamic finance industry in Malaysia. In particular, the framework has led to the institutionalisation of governance structures, policies and processes to promote end-to-end Shariah compliance in Islamic finance operations.
The requirements in this policy document outline the Bank’s strengthened expectations for effective Shariah governance arrangements that are well-integrated with business and risk strategies of the Islamic financial institutions. This augurs well with the growing scale and complexity of Islamic financial business, and recent policy developments in the areas of governance, compliance and risk management. Specifically, this policy document sets out strengthened oversight accountabilities on the board, Shariah committee and other key organs involved in the implementation of Shariah governance. Another area relates to Shariah committee’s objectivity to reinforce sound decision-making process and robustness of internal control functions for effective management of Shariah non-compliance risks.
Accordingly, Islamic financial institutions should demonstrate that their Shariah governance arrangements are operating effectively and appropriate to their size, nature of business, complexity of activities and structure. The Bank also expects to see evidence of better alignment in promoting a strong Shariah compliance risk culture within Islamic financial institutions. This is in line with the more active roles expected of the board, Shariah committee and senior management.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
