Sunday 24 October 2021

IMF endorses core principles of Islamic Finance Regulation

WASHINGTON, May 25, 2018

The International Monetary Fund (IMF) Executive Board has endorsed a proposal on the use of the core principles for Islamic Finance Regulation (CPIFR), which were developed by the Islamic Financial Services Board (IFSB) with the participation of the Secretariat of the Basel Committee on Banking Supervision. 
The CPIFR are intended to provide a set of core principles for the regulation and supervision of the Islamic banking industry and are designed to take into consideration the specificities of Islamic banks, as explained in the IMF Staff Paper: “The Core Principles for Islamic Finance Regulations and Assessment Methodology.”
The CPIFR will complement the international architecture for financial stability, while providing incentives for improving the prudential framework for Islamic banking industry across jurisdictions, said an IMF statement.
The CPIFR and their associated methodology will be applied in financial sector assessments undertaken in fully Islamic banking systems and, as a supplement to the Basel Core Principles for Effective Banking Supervision (BCP), in dual banking systems where Islamic banking is systemically significant.
The IMF executive directors welcomed the opportunity to consider the staff’s proposals to strengthen the fund’s engagement on promoting financial stability in countries with Islamic banking. They noted that the Islamic finance sector continues to grow and evolve in size and complexity, with Islamic banking offered in more than 60 countries, it said. 
Directors concurred that the growth of Islamic finance presents important opportunities to strengthen financial inclusion, deepen financial markets, and mobilize funding for development by offering new modes of finance and attracting “unbanked” populations that have not participated in the financial system.  
Directors noted that Islamic banks (IB) undertake distinct operations with risk profiles and balance sheet structures that differ in important respects from conventional banks, with associated financial stability implications. In this regard, they called for stronger efforts to strengthen the regulatory and supervisory frameworks to take into consideration the specificities of IB to promote financial stability and sound development, particularly in countries where IB have become systemically important. The approach to regulating and supervising IB should reflect the nature of risks to which IB are exposed and the financial infrastructure needed for effective regulation and supervision, which requires additional or different regulation and supervisory practices to address risks inherent in the Islamic banking operations, IMF said.  
Directors broadly endorsed the use of the “Core Principles for Islamic Finance Regulation” (Banking Sector) (CPIFR) and their assessment methodology for the purposes of undertaking financial sector assessments and preparing Reports on the Observance of Standards and Codes (ROSCs) initiated after January 1, 2019 regarding the effectiveness of regulation and supervision of IB. 
The CPIFR will complement the international architecture for financial stability, while simultaneously providing incentives for improving the prudential framework for the Islamic banking industry across jurisdictions.   - TradeArabia News Service

Tags: Islamic Banking | IMF | IFSB |

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