(MENAFN - Arab News) The Council of the Islamic Financial Services Board (IFSB), which is chaired by Muhammed Al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA), admitted eight new members to the organization at its 15th meeting held last week in Kuala Lumpur, Malaysia.
The two most significant new members are Banque centrale du Luxembourg, the central bank, and the Central Bank of Turkey both as associate members. This makes Banque centrale du Luxembourg the first central bank in the European Union to become a member of the IFSB, whose mandate is to set prudential and regulatory standards for the global Islamic financial sector. The Banque centrale du Luxembourg will also second staff to the IFSB so that they can become familiar with Islamic finance concepts and study the various issues, notably liquidity and risk management.
Marc Theisen, senior partner of Theisen & Stiltz law firm, welcomed the admission of Banque centrale du Luxembourg to the IFSB as the first EU central bank and stressed that it would reinforce Luxembourg's aspirations of becoming an Islamic finance funds and capital markets hub in Europe. Luxembourg's accession to IFSB membership could also pave the way for other major EU financial services regulators such as the UK's Financial Services Authority (FSA), the French central bank and the German central bank to follow suit.
The admission of the Central Bank of Turkey as associate member rather than a full member has surprised some analysts. After all, Turkey has four participation (Islamic) banks and is an active user of Islamic financing either from the financial markets or from the Islamic Development Bank (IDB). The decision to accede as an associate member is linked to the politics of Islamic finance in Turkey and underlines the sensitivities that Islamic finance holds in the supposedly staunchly secular country. Full membership of the IFSB hardly qualifies as creeping Islamist activity. After all two non-Muslim central banks — the Monetary Authority of Singapore and the Bank of Mauritius — are full members of the IFSB. The Turkish decision may also indicate a continuing lack of confidence of the government of Recep Tayyip Erdogan in navigating its Islamic finance policy.
The government has now been deliberating for the last two years whether to issue a sovereign sukuk to raise finance as part of Turkey's annual round of external borrowing requirement. In the light of the global financial crisis, Ankara decided to diversify its sources of external fund raising from the traditional IMF standby facility to include a possible sukuk issuance for the first time. Even the staunchly secular media and establishment have supported the potential issuance of a sukuk by sovereign Turkey in the right market conditions. But the government seems to be dragging its feet.
The other institutions that were admitted to the IFSB include the Insurance Authority of the United Arab Emirates as a full member; the Arab Chamber of Commerce & Industry in Hong Kong, Al-Aqeelah Takaful in Syria, Amsar Partner LLP in Singapore, IFC Linova LLC of Tatarstan in Russia, and West Services Inc. of the US — all as observer members. This brings the total membership of the IFSB, which was established in 2002, to 201, comprising regulatory authorities, inter-governmental organizations, market players, professional firms and industry associations.
The IFSB council also approved three documents aimed at enhancing the soundness and stability of the global Islamic financial services industry. They included "guiding principles on governance for Islamic insurance (Takaful) operations" (IFSB-8) which provides guiding principles on governance for all Takaful undertakings under each respective jurisdiction's purview. The aim is to reinforce relevant good governance practices prescribed by internationally-recognized standards and striking a balance between the interests and fair treatment of all stakeholders.
The second document "conduct of business for institutions offering Islamic financial services (IFSB-9) aims to promote a climate of confidence and a supportive environment in the business of the Islamic financial services industry by upholding and strengthening the relevant moral, social and faith values in business practices. The third document "guiding principles on Shariah governance system' (IFSB-10) aims to highlight the supervisory authorities in particular, and the industry's other stakeholders in general, the components of a sound Shariah governance system, especially with regards to the competence, independence, confidentiality and consistency of Shariah boards.
The IFSB council also appointed Sabir Mohammed Hassan, the governor of the Central Bank of Sudan, as the next chairman of its council to replace Al-Jasser, whose term ends on Dec. 31. Umayya Toukan, governor of the Central Bank of Jordan, at the same time was named deputy chairman of the IFSB council for 2010.
By Mushtak Parker