New law for Shariah-non-compliance risk management

The new Islamic Financial Services Act 2012 (IFSA) will statutorily enforce management of Shariah-non-compliance risk and requires Islamic financial institutions to ensure at all times that their aim, operation, business, affairs and activities are in compliance with Shariah.

"This is perhaps one of the distinctive features of the IFSA 2012," said Prof Datuk Dr Rifaat Ahmed Abdel Karim, Chief Executive Officer of International Islamic Banking Liquidity Management Corporation in a note today.

The Act, which is pending the Royal Assent, requires that any failure to abide by this statutory requirement has to be immediately notified to the regulator and the Shariah committee of the financial institution.

Furthermore, the financial institution is required immediately to cease carrying on the business or activity, which is the cause of the non-compliance, and within 30 days to submit to the regulator a plan for the rectification of the non-compliance.

"This strict provision is in line with the principal regulatory objectives of the Act, which aims to promote financial stability and compliance with Shari'ah," he said in his lecture on 'The Significance of Supervision and Regulation in Islamic Finance' at the Inceif campus.

The new Act, which is expected to come into force this year, seeks to consolidate the Islamic Banking Act 1983 and the Takaful Act 1984.

"When it comes into force it will be a landmark law, perhaps the only omnibus Islamic -finance legislation in the world," he added.

In addition, the Act will lay the foundation for a comprehensive regime to promote a robust and resilient Islamic fi-nancial system in Malaysia.