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SECP issues Guidelines for Offering Islamic Financial Services

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued the Guidelines for Offering Islamic Financial Services 2023 in the country on Wednesday.

According to the Guidelines for Offering Islamic Financial Services 2023, every Islamic financial institution is encouraged to constitute Shariah supervisory board at the earliest possible time to advise the board of directors and management of the Islamic financial institution on all Shariah-related matters.

A conventional financial institution may also convert itself into an Islamic financial institution through the prescribed guidelines. The conventional organizations have to get approval of conversion plan from their board of directors and appointment or engaging a Shariah supervisory board. They have to appropriately disclose the approved conversion plan to the relevant stakeholders.

According to the guidelines, a conventional financial institution may establish an Islamic window for providing Islamic financial services through the prescribed options including establishment of an independent legal entity and it shall comply with the relevant registration or licencing regime, as may be introduced for Islamic windows, with the obligation to follow the minimum regulatory requirements of capital allocation and maintenance, governance, and operations. The institution has to devise a specialized Shariah governance framework.

An “institution within institution” model can be followed, allowing maximum independence of the Islamic window to pursue its activities without unnecessary and undue interference or influence from the management of the parent financial institution. All business units and functions, including products, sales, service, and marketing, can be directly managed by the Islamic window, while control and support functions may be shared with the parent financial institution provided that there are defined cost allocation and service level agreements.

Islamic windows may ideally operate through dedicated Islamic-only branches and dedicated staff for these branches, serving only Islamic window customers. No customer-facing staff of any function may be allowed to serve both conventional and Islamic window customers

Every Islamic financial institution may have in place a comprehensive Shariah governance framework, which encompasses a set of institutional and/or system-wide arrangements for the effective and independent oversight of Shariah compliance of its products, services, processes, and business operations.

The key objectives of the Shariah governance framework are to provide a structure for governing all the business activities of the Islamic financial institution in order to ensure Shariah compliance and to enable the Islamic financial institution to be acknowledged as Shariah compliant by the stakeholders.

Every Islamic financial institution will establish a Shariah compliance unit which will work under the overall guidance and supervision of the Shariah supervisory board.

The Islamic financial institution will strengthen its internal and external audit departments.

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