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Omar Mustafa Ansari Head of Islamic Financial Services Group

Governance for Islamic mutual fund industry. Omar Mustafa Ansari Head of Islamic Financial Services Group Ernst & Young Ford Rhodes Sidat Hyder A member firm of Ernst & Young Global Limited. Outline. Governance for Islamic Financial Institutions Corporate governance – What and Why

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Omar Mustafa Ansari Head of Islamic Financial Services Group

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  1. Governance for Islamic mutual fund industry Omar Mustafa Ansari Head of Islamic Financial Services Group Ernst & Young Ford Rhodes Sidat Hyder A member firm of Ernst & Young Global Limited

  2. Outline • Governance for Islamic Financial Institutions • Corporate governance – What and Why • Fundamental pillars of corporate governance • Corporate governance models – a comparison • Islamic corporate governance model • Governance standards – AAOIFI and IFSB • Principles of governance • Introduction to IFSB – 6: Guiding Principles on Governance for Islamic Collective Investment Schemes • Key issues – points of focus

  3. Governance for Islamic financial institutions

  4. What is corporate governance?

  5. Why corporate governance? • Corporate governance is a crucial part of financial institutions and banking industry as a whole. • Banks and financial institutions play a significant role in the economy and they should adhere to strong corporate governance standards to: • ensure stakeholders’ satisfaction; and • confidence in the banking and financial system.

  6. Impact of good corporate governance It is all about having a better organization, a better socially responsible society and a better financial and economic system.

  7. Incentives for the financial services industry

  8. Fundamental pillars of corporate governance 1 2

  9. Fundamental pillars of corporate governance 3 4

  10. Corporate governance models – a comparison

  11. Islamic corporate governance model Allah SWT proclaims in Quran: “Men who celebrate the praises of Allah standing, sitting, and lying down on their sides, and contemplate the wonders of creation in the heavens and the earth, (with the thought): "Our Lord! Not for naught Hast thou created all this! Glory to Thee! Give us Salvation from the penalty of the Fire” (3: 191). This verse provides fundamental principle of governance where everything created by Allah has a purpose and human being is created to be the world’s vicegerent. By putting a trust to mankind as a vicegerent, Allah plays actively roles to monitor and involve in every affairs of human being and He is aware and knowing everything all the times.

  12. Islamic corporate governance model – why different?

  13. Governance standards – AAOIFI and IFSB

  14. Governance standards issued by AAOIFI and IFSB

  15. Principles of governance

  16. Principles of governance

  17. Principles of governance(Contd.)

  18. Principles of governance(Contd.)

  19. Principles of governance(Contd.)

  20. Comparison of functions – Islamic and conventional financial institutions

  21. Summary of governance framework for Shariah compliance for IFIs Islamic financial institution Central Bank AAOIFI & IASB Shareholders External Auditors BOD SSB IFSB AAOIFI Standards Audit Committee / ACG Prudential Regulations / Standards Internal Shariah Audit / Shariah Review / Shariah Compliance

  22. IFSB – 6Guiding Principles on Governance for Islamic Collective Investment Schemes

  23. Islamic Collective Investment Scheme (ICIS) – Definition • Under the guiding principles, Islamic Collective Investment Scheme (ICIS) is defined as any financial scheme which meets all of the following criteria: • investors have pooled their capital contributions in the fund where their share is divided into units and the right to share profit or losses in the pool; • fund is established and managed in accordance with Shariah rules and principles; and • it is a separate entity in terms of financial assets and liability.

  24. Principles set out by the IFSB – 6 Part I Part II Part III Part IV

  25. Key issues – point of focus

  26. Key issues : organs of governance and Shariah compliance controls at entity level • BOD / Audit Committee – additional functions • HR • Hiring • Training • Shariah compliance function • Resources • Reporting line • Independence vs. product development • Shariah Audit • Internal • External • Supervisory • Policies, procedures and systems • Shariah Rating • Shariah compliance • Fiduciary responsibility

  27. Key issues – focus required: SSB and SAs • Right forum – board or advisor • Right responsibilities • Support • Advise • Supervise • Judge and decide • Report • What to? • How to? • Independence • Objectivity – state of mind / from the heart • Influence • Teachers / school of thoughts • Peers • Management • Capability

  28. Thank you

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