Council of the IFSB adopts guiding principles on corporate governance for Islamic financial institutions

The 9th Meeting of the IFSB Council was held on 29 November 2006 at the Islamic Development Bank Headquarters in Jeddah, Saudi Arabia.

Titled Guiding Principles on Corporate Governance for IIFS (excluding Islamic insurance (takaful) institutions and Islamic mutual funds), the document gives special attention to addressing the specificities of IIFS. In addition to the normal corporate governance guidelines for banking organizations, the document requires IIFS to put in place adequate infrastructure to a) protect the rights of investment account holders; and b) uphold Shari'ah governance, both of which have been identified as unique features of IIFS.

The Guiding Principles essentially builds on existing internationally recognized best practices for corporate governance such as those issued by the Organization for Economic Co-operation and Development (OECD) as well as the Basel Committee on Banking Supervision (BCBS). This approach of not reinventing the wheel allows the specific recommendations of sound corporate governance practices to be harmoniously adopted and implemented by IIFS worldwide, in concert with existing national legislations, regulations or codes.

Professor Rifaat Ahmed Abdel Karim, Secretary-General of the IFSB noted:

"The IFSB expects this document to become the impetus for further improvement in corporate governance amongst IIFS, which will further contribute to the soundness and stability of the Islamic financial system. It should facilitate more effective risk management practices and greater transparency in the Islamic financial services industry. The Guiding Principles marks another milestone for the IFSB after the issuance of our capital adequacy standard and guiding principles on risk management in December 2005."

The Guiding Principles was developed by a Working Group which commenced in May 2004, chaired by H.E. Dr. Abdulrahman A. Al-Hamidy, Deputy Governor of Saudi Arabian Monetary Agency. The draft had undergone a 5-month public consultation period, during which the IFSB received comments from various stakeholders including IIFS, supervisory authorities, academics as well as other interested organizations. All documents prepared by the IFSB follow a lengthy due process as outlined in its Guidelines and Procedures for the Preparation of Standards/Guidelines.

The Guiding Principles will be available for download from the IFSB website from December 2006.