The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued a draft standard on murabaha to update guidance on the most common financing tool used by Islamic banks. AAOIFI is conducting a wide review of its standards to encourage convergence of industry practices and increase consumer appeal. The proposed standard would supercede two earlier ones on murabaha. It would also cover new areas such as the accounting treatment on the liability side of a murabaha transaction. AAOIFI is seeking industry feedback on the draft until the end of March, aiming to make the final version effective from January 2019.
The fourth quarter of 2016 saw proposals published by AAOIFI for standards on central sharia boards as well as new governance rules for Islamic banks in Kuwait and the Federal Territory of Labuan. The quarter also saw the IFSB issue a technical note on stress testing for institutions offering Islamic financial services. The proposed AAOIFI standard on central sharia boards is intended to provide guidance for strengthening corporate governance and thereby increase the consumer appeal of sharia-compliant financial products. It covers several aspects such as the appointment, composition and dismissal of board members, tenure of the board, functions of the central sharia board, responsibilities of the appointing authority, fit and proper criteria, and independence.
The third quarter of 2016 saw Bank Negara Malaysia publish policy documents on ijarah, hibah, qard and wadi'ah. The Central Bank of Bahrain launched a consultation on a proposed sharia governance module and the Indonesian government launched a 10-year Islamic finance master plan. The Islamic Financial Services Board (IFSB) and the Arab Monetary Fund signed a memorandum of understanding (MoU) to establish a framework to promote initiatives that foster the development of the Islamic finance sector in the Arab region. The MoU is for an initial period of three years.
Singapore charged a former wealth manager at Swiss private bank with forgery as part of a money laundering investigation related to 1Malaysia Development. The forgery charge is the seventh filed against Yeo Jiawei, a 33-year-old Singaporean banker. While the charges didn't mention 1MDB by name, they stem from investigations into the fund's money flows. The prosecutors charged Yeo with "fraudulently" signing a reference letter to the head of anti-money laundering and sanctions compliance of Citigroup Inc in Europe.
In response to fears of being fined for compliance failings banks are making blanket exits from certain businesses or closing clients' accounts on a large scale. Regulators disagree with such wholesale withdrawal from certain areas of business, even if it is done in the name of de-risking. Such de-risking moves are being carried out mostly at the large international banks, however Asia has seen very little de-risking so far.
According to The Fourth Annual Global Anticorruption Survey corruption remains a growing concern. Some 90 percent of those polled replied that their industries faced corruption risks, up from 85 percent last year. Also, 28 percent of respondents said the risk was significant, compared to 22 percent last year. The numbers for Africa and the Middle East increased significantly from last year's figures of 59 percent and 45 percent, respectively. For Russia, the score improved slightly, dropping two percentage points from 75 percent last year.
The first quarter of 2016 saw concept papers on Qard and Hibah issued by Bank Negara Malaysia. The Islamic Financial Services Board (IFSB) has provided a further update on the financial soundness and growth of Islamic banking systems. The International Monetary Fund (IMF) has published a working paper on Monetary Policy in the Presence of Islamic Banking. Concept papers on Qard and Hibah In January, Bank Negara Malaysia (BNM) issued a concept paper on Qard. The concept paper is divided between the sharia and operational requirements in relation to the operationalisation of Qard contract.
Singapore's central bank has asked financial institutions to provide details of any transactions linked to Malaysian state investor 1Malaysia Development Berhad (1MDB) as part of its probe into possible money-laundering in the city state. The statement came late Thursday after it was reported earlier this week that the Monetary Authority of Singapore (MAS) has reportedly asked close to 40 banks with a presence in Singapore to provide information linked to 1MDB. Australia and New Zealand Banking Group (ANZ) and National Australia Bank (NAB) are believed to be among those queried. ANZ and NAB both declined to comment.
The United States is not standing in the way of foreign banks doing business with Iran, a senior U.S. official said, but his comments appeared unlikely to satisfy frustrated businessmen and Iranian officials. Most international sanctions against Iran's economy were lifted in January after Tehran implemented a deal with world powers to curb its nuclear programme. But Washington kept some sanctions that were originally imposed over missile proliferation and alleged support of terrorism. The fear of being caught up in those remaining sanctions has deterred most foreign banks from restoring links with Iran, angering the Iranian government.
Ratings agencies in the European Union, which came under fire during the financial crisis for the verdicts they gave on sub-prime debt, still need to be better supervised, the bloc's auditor said on Monday. The European Court of Auditors said that the European Securities and Markets Authority's supervision of the agencies since 2011 was well established, but not fully effective. Cumbersome registration rules and central bank hurdles are making it harder for smaller credit ratings agencies to compete with the "Big Three" in the EU, the report concluded. Ratings agencies came under the gun during the 2007-09 financial crisis.
Regulators in developing countries need to find a new approach to supervising digital financial services or they risk hampering the efforts to increase financial inclusion, researchers have warned. Ross Buckley, chair of international finance law and Scientia Professor at UNSW Australia, said over-regulation posed the greatest threat to the development of the nascent fintech industry in developing countries. In many poorer areas the combination of finance and telecommunications technology was the only way to deliver banking services cost-effectively, he said.
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is revamping key standards and boosting its engagement efforts with the industry, part of an ambitious reform agenda for the Bahrain-based body. A revised standard for sukuk and a new one covering the sale of debt are among major efforts planned for next year, secretary-general Hamed Hassan Merah told Reuters in an interview. Industry bodies like AAOIFI have been urged to adapt in a sector that has grown fast but remains fragmented across its core centres in the Middle East and Southeast Asia.
Tariqullah Khan, a prominent economist in Islamic finance, has called for the creation of an "apex body" that would set policy for the industry globally, to cut risks that could contribute to a financial crisis. The professor of Islamic finance at Qatar's Hamad bin Khalifa University proposed the body comprising national regulators, central bankers and other stakeholders. It would help to promote the standards of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the Malaysia-based Islamic Financial Services Board (IFSB).
The Malaysian government announced the new incentives for "ethical" Islamic bonds in the 2016 budget which was delivered by Prime Minister Najib Razak. The government originally introduced the concept of "ethical" sukuk to finance "sustainable and responsible investment" (SRI) in 2013. Sovereign wealth fund Khazanah sold 100 million ringgit ($23.7 million) of SRI sukuk in May this year but so far there have been no other issues. In Friday's budget, Najib said Malaysia would cut taxes on issuance costs of SRI sukuk, and also that sharia-compliant loan instruments would be given a 20 percent stamp duty exemption in certain cases.
Saudi Arabia would be open to relaxing its rules on foreigners investing directly in its stock market to help it get included in global indices, the chairman of the Saudi financial-markets regulatory agency, the Capital Market Authority, said. In his first interview with international media since his appointment in January, Mohammed al-Jadaan also defended the limited trading so far by qualified foreign investors (QFIs) and noted the kingdom was already seeing wider benefits from having direct foreign access to its $470 billion stock market. On June 15, the Saudi stock exchange, the Tadawul, became one of the last major emerging markets to let foreigners buy shares directly.
Bitcoin may be becoming the single common currency used by cyber criminals across the European Union, said Europol. In its 2015 internet organised crime threat assessment, it warned about, among other things, money muling and laundering services that required concerted and coordinated international law enforcement action, and that Bitcoin was featuring heavily in many EU law enforcement investigations. Although there is no single common currency used by cybercriminals across the EU, it is apparent that Bitcoin may gradually be taking on that role.
Developing countries are losing around $100 billion a year in revenues because foreign investors are channelling profits through offshore zones to avoid tax, a study by U.N. think-tank UNCTAD said on Wednesday. The economic and trade body published the $100 billion figure in its annual World Investment Report, which analyses how much foreign direct investment (FDI) is flowing across borders in search of corporate takeovers and start-up ventures. It calculated the amount by applying an average tax rate of just over 20 percent to around $450 billion of corporate profits shifted out of developing economies every year.
Encouraged by years of central bank easing, investors are ploughing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth, the OECD warned on Wednesday. In its first Business and Finance Outlook, the Organisation for Economic Cooperation and Development highlighted a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments. It urged regulators to keep a close eye on investors as they piled into leveraged hedge funds and private equity and poured cash into illiquid assets like high-yield corporate bonds.
Saudi Arabia's Capital Market Authority (CMA) is studying plans to introduce rules governing the listing of real estate investment trusts (REITs). The regulator has approached market participants in recent weeks about forming a panel which will report to it on areas including how REITs work in international markets. The CMA was not available to comment. Given the early stage of the plans and the slow pace of regulatory progress in the kingdom, it is likely to take some time to draw up even draft rules for REITs, securities which trade on stock markets but which invest directly in properties and distribute profits as dividends.
Morocco has issued a royal decree to create a sharia board of Islamic scholars to oversee the country's fledgling Islamic finance industry. Called the Sharia Committee for Participative Finances, it will be composed of 10 Islamic scholars and financial experts, the country's official bulletin said. The members of the committee will be named by the president of the country's Islamic scholars council. The board will approve the conformity of the Islamic products proposed by the participative banks, as they will be known under the legislation, and insurance (takaful) to sharia law. It will also oversee the central bank decisions regarding the participative finances sector.