Islamic Finance

Prudential, Regulatory and Supervisory Criteria 165

business or a formal two-tier system of regulation of Islamic financial

business typically have a formal regulatory requirementto appoint an SSB.

In the case of an IFI, the SSB will typically be responsible for overseeing

the business of the IFI in its entirety, and to ensure compliance with the

Shari’a, including reviewing the products and services offered by the firm.

In the case of a conventional financial institution offering Shari’a-compliant

products and/or services, the SSB’s responsibilities will be more limited,

focusing on the products and services themselves, although depending upon

the terms of the appointment of the SSB, the SSB may also be responsible

for overseeing that there are appropriate divisions between the conventional

and Shari’a-compliant sides of the business. By way of practical example,

any institution offering a borrower an interest-free loan (qard al-hasan)in

compliance with the Shari’a would, according to most scholars, need to take

steps with a view to ensuring that the monies leant to the borrower must

derive from Shari’a-compliant sources.

Policies and procedures

Regulators in some jurisdictions (including the DFSA and the QFCRA) have

introduced express laws and regulations requiring locally established IFIs

to put policies and procedures in place to ensure compliance withfatwas,or

guidance issued by their SSB. For example, Rule 4.2.1(1) of the Islamic

Financial Business Module of the DFSA’s Rulebook provides that:

“[a]n Authorized Firm undertaking Islamic financial business

must implement and maintain an Islamic financial business

policy and procedures manual which addresses ... the manner in

which Shari’a Supervisory Boardfatwas, rulings and guidelines

will be recorded, disseminated and implemented and the internal

Shari’a review undertaken.”

This noted, financial services regulators rarely take a formal role in

assessing compliance with the Shari’a. In its role asthe financial services

regulator in relation to Islamic financial business, the FSA has publicly

stated that it is not in a position to assess compliance with Islamic law.^1

Briefing Note BN016/06 states that:

“[t]he FSA’s policy towards Islamic banks, and indeed to any

new or innovative financial services company, can be summed up

simply as “no obstacles, no special favours”. We are keen to

promote a level playing field between conventional and Islamic

providers. One thing we are clear about is that we are a financial,

not a religious regulator.”

(^1) In this context, the FSA’s published policy in relation to the regulation of Islamic financial services can be
found in FSA Briefing Note BN016/06 entitled “Islamic Banking in the UK,” 2006.