How to regulate islamic financial markets and products - Central Banking Training Courses/Seminar Series 2012

How to Regulate Islamic Financial Markets and ProductsClick here to download the full brochure

13 - 16 September 2011, Cambridge, UK

Tuesday 13 September - The evolution of Islamic finance and its regulatory standards

Opening remarks and participant experience
Aly Khorshid, Director of Islamic Finance Studies, Academy UK and Sharia Board Member

This session sets the scene with a review of the key challenges confronting supervisors in their home institutions and the latest international developments in relation to Islamic finance. Delegates will be invited to give a brief account of their local regulatory system and explain their most pressing regulatory and supervisory challenges. This session is an opportunity for delegates to benefit from each other's expertise and experience in confronting common problems.

The evolution of Islamic finance: where is the industry today?
Mehmet Asutay, Lecturer, Durham University

Islamic finance has grown significantly since its emergence in modern form in the 1960s. Today, as a global industry involving banking, insurance and capital markets, its reach extends beyond traditional Muslim jurisdictions, and into the western world and the Asia Pacific region. The speaker, a leading scholar on the development of Islamic finance, will chart the evolution of the sector, identifying recent and long-term trends and significant developments such as the growth of the sukuk market and the potential for takaful and other products.

Recent developments in IFSB and AAOIFI standards
Joëlle el Gemayel, Research Assistant to the First Vice-Governor, Banque du Liban
Khairul Nizam, Assistant Secretary General, Accounting and Auditing Organization for Islamic Financial Institutions

Underpinning regulation of Islamic finance today is a range of prudential and supervisory standards developed by the IFSB and AAOIFI which have been likened to an Islamic finance equivalent of Basel II. In December 2010 the IFSB published their standard for solvency requirements for takaful, and are looking to develop new standards in the near future. It is important for central banks and regulators to stay abreast of these standards which are constantly being developed. In this session, the speakers will discuss recent and likely developments in these standards and how a central bank can translate these effectively into their framework. Group discussion will conclude by addressing the extent to which uniformity of regulation is both desirable and practical for both Islamic and conventional finance.

Wednesday 14 September - Building the regulatory framework

How to implement a domestic regulatory and supervisory framework
Omar Sheikh, Committee Member, UK Treasury Advisory Sub-Committee and Board Member, UKIFC

The development of a legal framework for governing, supervising and regulating Islamic banking may seem like an obvious stage of progression within a jurisdiction however development around the globe has been uneven with some jurisdictions at a more advanced stage than others. The United Kingdom is one jurisdiction that has been praised for establishment of an enabling fiscal and regulatory framework for Islamic finance. This has proved pivotal for development of the industry not only in the UK, but also in attracting business to the country In this session, the speaker, a leading authority in the development of Islamic finance in the UK, will draw out lessons from the UK experience identifying policies developed at governmental and regulatory level and how they worked with the industry itself.

Licensing and supervising Islamic banks in a dual regulatory system
Joëlle el Gemayel, Research Assistant to the first Vice-Governor, Banque du Liban

The Islamic Financial Services Board has outlined concerns that Islamic banking will not be given enough regulatory attention in dual system states. How are such fears being addressed? Lebanon has made significant progress in promoting Islamic banking and has authorised a number of institutions including the Lebanese Islamic Bank and Al Baraka Bank since the central bank developed its regulatory framework for supervision in 2004. In this session, the speaker will outline the approach the Banque du Liban has taken in implementing Islamic finance in a dual regulatory system and how to overcome common licensing and regulatory challenges.

Ensuring financial stability of the system: the experience of Malaysia
Rustam Mohd Idris
Deputy Director, Bank Negara Malaysia

Once a framework is established, central banks and regulators need to ensure it's robust enough during times of stress.The Malaysian Islamic financial system is widely recognised as both robust and fast growing with a number of diverse market participants. These participants include Islamic banks, takaful companies, investment banks, savings institutions, fund managers, stock brokers and unit trusts. However, with growth comes the potential for risks at both micro and systemic level. Central banks and standard setters within the jurisdiction have developed a system designed to ensure the stability of the system but also allow innovation and growth. In this session, the speaker will provide lessons learned from the central banks experience focusing on mitigating systemic risk and contagion. Discussion will draw upon some of the industry leading practices currently exercised in the jurisdiction.
Risk issues on Sukuk and other Islamic financial structures

Warren Edwards
CEO, Delphi Risk Management

The takaful industry is poised for massive growth in 2011. The Islamic Financial Services Board along with regulators are in the process of developing standards for takaful, however a rigid framework is far from complete. In addition, the Dubai debt crisis in 2009 had a negative impact on the sukuk market. Central banks and regulators have to comprehensively assess the risk profile of Islamic banks, and indeed conventional banks with Islamic windows to effectively supervise these products and mitigate systemic crisis. In this session, the speaker will discuss Basel II and IFSB standards for capital requirements and how these can be used to effectively regulate Islamic banking services. In addition, specific examples of bank capital calculations used in various jurisdictions will be provided and discussion will focus on how to develop country specific approaches.

New developments in liquidity management
Ellie Flatter, Liquidity and Prudential Surveillance, Central Bank of Luxembourg (invited)

The lack of a cross-border liquid market infrastructure and instruments for the management of liquidity risk has been seen to be a long standing issue impacting the development and regulation of Islamic finance. In April 2010, in what has been viewed as a major triumph for the Islamic financial industry, 11 central banks and 2 multilateral organisations have recently signed the Articles of Agreement for the establishment of the International Islamic Liquidity Management Corporation (IILM). This is a significant development which is designed to provide to provide liquid short-term sharia compliant instruments. In this session the speaker will discuss how the IILM works, the progress it has made, and the benefits it can provide for central banks, regulators and the Islamic banks that they supervise.

Thursday 15 September - Sharia law and governance

The role of sharia boards and scholars
Aly Khorshid, Director of Islamic Finance Studies, Academy UK and Sharia Board Member

All Islamic banks have a sharia board which governs the products that they trade. It is important that central banks and regulators understand how they function and the level of influence they have within the banks that they supervise. It has been argued that Sharia scholars and their differing interpretations across different banks can lead to a lack of harmonisation which ultimately can impact their effectiveness as a provider of risk management and compliance within their respective banks. This can be a supervisory nightmare for central banks and regulators as interpretations can differ across the banks they supervise leading to challenges when developing a regulatory framework. In this session, led by the chairman, discussion will focus on how effective Sharia boards are within Islamic banks and what steps need to be taken to ensure the harmonisation of Sharia interpretations across jurisdictions.

Panel discussion on Sharia governance
Humayon Dar, CEO and Sharia Advisor, BMB Islamic
Muhammad Imran Ashraf Usmani, Sharia board member, State Bank of Pakistan (invited)
Moderated by Aly Khorshid

Sharia advisory boards are an integral part of the governance structure of Islamic banks. In this session, two well-respected Sharia advisors will debate the pressing issues surrounding Sharia governance and its relationship with the regulatory framework. Particular attention will be devoted to the composition, make up and role of Sharia boards. Delegates will be invited to pose questions to the panel and discuss specific questions they have and challenges they face in this important and often misunderstood area.

Developing talent within Sharia advisory boards
Syed Azhan Syed Ahmad Bakhor, Islamic Capital Market Department, Securities Commission Malaysia (invited)

In the third session of the day focussed on the role of advisory boards, the focus will be on developing relations with the scholarly community. Some observers contend that Sharia advisory boards are limited to a pool of scholars and that new, young experts need to be recruited to ensure Islamic finance remains contemporary and flexible. Malaysia has tried to tackle this issue with the development of a Sharia Governance Framework (SGF) which requires Sharia boards to recruit a younger scholar. In this session, the speaker will explain how this framework works and offer an assessment discussing how Sharia boards can evolve through talent development and the role which central banks and regulators can play drawing on the example of Malaysia.

Being supervised: an Islamic bank's perspective
Michael Clark, Chief Executive Officer, European Financial House (invited)

In this session the speaker, a senior figure from an Islamic bank, will discuss the supervision of Islamic banks from a banks perspective. The speaker will provide a critical insight into the role of regulators and discuss specific issues in relation to the emerging regulatory framework from a regulated perspective. Discussion will focus on how central banks and regulators can gain a deeper understanding of the challenges their respective Islamic banks face in order to develop an appropriate supervisory approach

Friday 16 September - New directions for Islamic finance

Emerging threats for Islamic Financial Institutions
Sunando Roy
Advisor, Central Bank of Bahrain

Text to follow, check back for details

New opportunities for Islamic finance in Europe
Didier Peny, Director, Licensing, Authorisation and Regulation, Banque de France

In 2011, there has been growth in the trading of Islamic financial products from Middle Eastern and far eastern jurisdictions to Europe. Most notably, Dubai has increased trading of sukuk and other products to France and Germany due to tax advantages. Luxembourg is also seen to be emerging as a hub for Islamic finance as again, tax authorities have recognised the specific requirements of Islamic products. In this session, the speaker will identify the opportunities for growth of Islamic finance in Europe and identify what steps Islamic banks and their relevant supervisors can take to capitalise on the opportunities that are available.

Lessons learned and action points
Led by the chairman

In this final round-up session, the chairman will revisit the key lessons from the sessions over the course of the four days. This final workshop session will highlight some the main ideas for further development and reflection, and will bring the course to a close.