THE ISLAMIC FINANCIAL SERVICES ACT 2013 Zulkifli Hasan (Ph.D) Faculty of Syariah and Law University Sains Islam Malaysia 1
THEISLAMICFINANCIALSERVICESACT2013
Zulkifli Hasan (Ph.D) Faculty of Syariah and Law
University Sains Islam Malaysia
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Contents
• Introduction • About the IFSA • Significant Features of
the IFSA
• Implications, Issues and Challenges
• Conclusion
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• Considerablegrowthwith16full-fledgedIB,12TakafuloperatorsandsixDFI.
• Significantprogresswithmarketshareincreasedupto25%in2014(40%in2020)ofthetotalbankingsystem.
• TotalIslamicfinancingconMnuedtogrow16.6%andrepresented26.9%oftotalloans/financinginthebankingsystem.
• 799Shari’ah-compliantsecuriMeswerelistedonBursaMalaysia,represenMng87.7%ofthetotallistedsecuriMes,withamarketcapitalizaMonofRM995.7billionor63.7%ofthetotalmarketcapitalizaMon.
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An Overview of IF in Malaysia
• Theexis,ngframeworkofIslamicfinanceinvariousjurisdic,onsdemonstratesdiverseprac,cesanddis,nctmodels.Malaysiaastheproponentofregulatory-basedapproachhasins,tutedseveralini,a,vestopromotefinancialstabilityandthisincludethenewlaw,theIslamicFinancialServicesAct2013.
• FeaturesofthisAct/Newdimensions/Legalconsequencesintheaspectsofdemarca,onbetweenIslamicbankinganditsconven,onalcounterpart,elementofconsumerism,interestofdepositorsandIAH,corporategovernance,Shari’ahcompliance,liabili,es,judicialoversightandproductsandservices
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Introduction
• TheIslamicBankingAct1983,theTakafulAct1984,theBAFIA1989andtheSecuriMesCommissionAct1993.
• TheCentralBankofMalaysiaAct2009• MalaysianFinancialSectorBlueprint2011-2020:tostrengthentherelevantregulatoryandlegalframework.
• TheIFSA:ConsolidatestheIBAandtheTAandrepealsbothActs.RoyalAssenton18March2013,gazeYedon22March2013andcameintoeffectinJune2013.
• GuidelinesforIFIs:Eg.GuidelinesontheDisclosureofReportsandFinancialStatementsofIslamicBanksandtheShari’ahGovernanceFramework.
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Background
• “TheregulatoryandsupervisoryframeworkforthefinancialsectorwasstrengthenedwiththecomingintoforceoftheFSAandIFSAon30June2013.ThisensuresthatlawsgoverningtheconductandsupervisionoffinancialinsMtuMonsinMalaysiaconMnuetoberelevantandeffecMveinmaintainingfinancialstability,supporMngasustainable,balancedandinclusivegrowthoftheeconomy,aswellasprovidingadequateprotecMonforconsumers.ThelawsfurtherstrengthenBNM’ssupervisoryandregulatorypowers,includingcomprehensivepowerstocarryoutconsolidatedsupervisionoffinancialgroupsandtoextendtheregulatoryperimetertosystemicallyimportantnon-bankenMMesthatundertakefinancialintermediaMonacMviMes”.
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IMF Country Report No 14/80
Summary of the IFSA
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18PartsintheIFSAwith291secMonsand16SchedulesPartI:PreliminaryPartII:RegulatoryObjecMves,PowersandFuncMonsofBank,PartIII:AuthorizaMon,PartIV:ShariahRequirements,PartV:PaymentSystems,PartVI:PrudenMalRequirementsPartVII:Ownership,ControlandTransferofBusinessPartVIII:FinancialGroupsPartIX:BusinessConductandConsumerProtecMonPartX:IslamicMoneyMarketandIslamicForeignExchangeMarket,PartXI:SubmissionofdocumentorinformaMonPartXII:ExaminaMon,PartXIII:DirecMonsofCompliancePartXIV:IntervenMonandRemedialAcMonPartXV:OtherPowersofBank,PartXVI:EnforcementandPenalMes,PartXVII:GeneralProvisions,PartXVIII:Repeal,savingsandtransiMonal
• TheIFSAgovernsallIFIsincludingIslamicbanks,takafuloperators,internaMonalIslamicbanks,internaMonaltakafuloperatorsaswellasoperatorsofpaymentsystemswhichthetransferoffundsbetweenIslamicbankaccountsorwhichenablespaymentstobemadebymeansofIslamicpaymentinstruments,issuersofIslamicpaymentinstruments,takafulbrokersandIslamicfinancialadvisor.
• TheIFSAneverthelessexcludesdevelopmentfinancialinsMtuMonsandcooperaMvesocieMes.
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Institutions under the IFSA
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Enhancement
EntrenchesroleofBNMasShariahregulator
EmbedsShariah
principles&SACrulings
Enforcesstatutorydutyto
complywithstandards,ensureShariah
compliance,manageShariahnon-
compliancerisks
VigorousShariah
compliancerequiremen
ts
SeverePenalOes
RegulaOononinsOtuOonsandfinancialacOviOes
• DatukNorShamsiahMohdYunus,DeputyGovernor:• Theemphasisongovernanceframeworkforanend-to-end
Shariahcompliance.• Toprovideacomprehensivelegalframeworkthatisfully
consistentwithShariahinallaspectsofregula;onandsupervision,fromlicensingtothewindingup.
• Toprovidestatutoryfounda;onforaShariahcontracts-basedregulatoryframeworkthatwouldfacilitatethenextlevelofIslamicbankingbusiness,transcendingbeyondfinancialintermedia;ontoincluderealeconomicsectorpar;cipa;on,completewiththeconsequentregulatorychecksandbalance.
• Torealisefurtherthevalueproposi;onofIslamicfinance.
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Objective
ObjecMves• S6:topromotefinancialstabilityandcompliancewith
Shariah.• authorizetheBNMastheauthoritaMvebodytoensure
stabilityparMcularlytofosterthesafetyandsoundnessofIslamicfinancialinsMtuMons,orderlyfuncMoningoftheIslamicmoneymarketandtheIslamicforeignexchangemarketaswellasefficientandreliablepaymentIslamicpaymentinstrumentsandfair,responsibleandprofessionalbusinessconductofIslamicfinancialinsMtuMons.
• TheIFIsarealsorequiredtostrivetoprotecttherightsandinterestsofconsumersofIslamicfinancialservicesandproducts.
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ScopeofIFSA• FocusofregulaMonnowonfinancialacMviMesandnotjustfinancialinsMtuMons
• SpecificprovisionsonconsumerprotecMonandshareholding.
• CorporateIntervenMon• ConsumerShareholding• GovernanceProtecMon• Newandenhancedpowers
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BNMasFinancialandShari’ahRegulatorDivision Provision
Division 1: Shari’ah Compliance
S 27: InterpretationS 28: Duty of institution to ensure compliance with Shariah S 29: Power of Bank to specify standards on Shariah matters
Division 2: Shari’ah Governance
S 30: Establishment of Shari’ah committeeS 31: Appointment of Shari’ah committee memberS 32: Duties of Shari’ah committee and its members S 33: Cessation as member of Shari’ah committee S 34: Notice of cessation as member of Shari’ah committee S 35: Information to be provided to Shari’ah committee S 36: Qualified privilege and duty of confidentiality
Division 3: Audit on Shariah compliance
S 37: Appointment of person by institution to conduct audit on Shari’ah complianceS 38: Appointment of person by Bank to conduct audit on Shari’ah compliance
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• StatutoryfoundaMonforaShariahcontracts-basedregulatoryframeworktranscendingbeyondfinancialintermediaMon.
• TorealisefurtherthevalueproposiMonofIslamicfinance• Eg.IFSAclearlydisMnguishedCASAholdersfromanIAH.• Investmentaccountasanaccountforthepurposesofinvestment,includingfortheprovisionoffinance,ontermsthatthereisnoexpressorimpliedobligaMontorepaythemoneyinfulland– (a)withprofits-sharing,orboththeprofits-or-losses-sharingfeatures
– (b)withorwithoutanyreturn.
IslamicvConvenOonalFinance
IFIs• “IFIs”meansafinancialinsMtuMoncarryingonIslamicfinancialbusiness;
• S2IFSA:Islamicbankingbusiness”meansthebusinessof
• (a)accepOngIslamicdepositsoncurrentaccount,depositaccount,savingsaccountorothersimilaraccounts,withorwithoutthebusinessofpayingorcollecOngchequesdrawnbyorpaidinbycustomers;or(b)accepOngmoneyunderaninvestmentaccount;and(c)provisionoffinance;
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(S15oftheFSA2013)
• Upon an applicaMon to the Bank and where the Bank has granted its wriYenapproval–• A licensed bank or licensed investment bank may carry on Islamic banking
business• Anapprovedinsurancebrokermaycarryontakafulbrokingbusiness• AnapprovedfinancialadvisermaycarryonIslamicfinancialadvisorybusiness• An operator of a designated payment system or approved operator of a
payment system may facilitate parMcipants engaged in Islamic financialbusinesstotransfer,clearorseYlefundsorsecuriMes
• An approved issuer of a designated payment instrument may issue adesignatedIslamicpaymentinstrument
• SubjectedtothefollowingprovisionsoftheIFSA2013parMcularly• Parts IV (Shariah Requirements), VI (PrudenMal Requirements), IX (Business
Conduct and Consumer ProtecMon), X (Islamic Money Market and IslamicForeignExchangeMarket)andXIII(DirecMonsofCompliance)
• Any standards, noMces, direcMons, condiMons, specificaMonsor requirementsspecifiedormadeundertheIFSA
©ZICOlaw.AllRightsReserved.
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DefiniOonof‘Depositors’PreviouslyundertheIslamicBankingAct1983:• meansapersonwhohasanaccountatan Islamicbank,whether the
accountisacurrentaccount,asavingsaccount,aninvestmentaccountoranyotherdepositaccount
NowundertheIFSA2013:• means a person enMtled to the repayment of an Islamic deposit,
whethertheIslamicdepositwasmadebyhimoranyotherpersonanddis;nguishedfroman“investmentaccountholder”,as:
• “investmentaccount”referstoanaccount:– for the purposes of investment, including for the provision offinance,
– ontermsthatthereisnoexpressorimpliedobligaMontorepaythemoneyinfulland—
(a)withprofits-sharing,orboththeprofits-or-losses-sharingfeatures(b)withorwithoutanyreturn
DefiniOonof‘IslamicDeposit’PreviouslyundertheIslamicBankingAct1983:• means a sumofmoneyormoniesworth receivedbyorpaid to any person, under which the receipt andrepayment shall be in accordance with the terms of anagreementmadeunderanySyariahprincipleonanybasisincludingcustodyorprofitsharing
NowundertheIFSA2013:• means a sum ofmoney accepted or paid in accordancewithShariah—(a)ontermsunderwhichitwillberepaidinfull;or(b)wherebytheproceedstobepaidshallnotbelessthansuchsumofmoney.
• May include precious metal or precious stone, or any arMcle or thing as may be prescribed by theMinister regardless of whether the transacMon is described as a loan, a financing, an advance, aninvestment,asavings,asaleorasaleandrepurchaseorbywhatevernamecalled!
DefiniOonof‘return’
• in relaMon to the definiMons of “financingfacility”, “investment account” and “Islamicdeposit”, and “Islamic securiMes” as defined insubsecMon 224(1), includes any form of rental,profit, dividend or benefit, and any fee or gio,payableortobegiven.
HibahinIslamicDeposit• ShariahParameteronHibahBNM;• S16.1Thehibahcontractmaybearrangedtogetherwith
theqardcontractwherebytheborrowerathisowndiscreMon,maygivehibah,eitherinmonetaryornon-monetaryform,tothelenderprovidedthatitisnotapre-condiMonattheMmeofenteringintotheqardcontractandprovidedthatsuchpracMcedoesnotbecomeacustomarypracMce(`urf).
• S16.2Pursuanttoparagraph16.1,thepracMceofgivinghibahisconsideredcustomaryifthehibahisgiventoamajorityoftheborrower’slenders.
• S16.3Theborrowerintheqardcontractshallnotundertaketogivehibahtothelender.
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CorporateGovernance
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• TheIFSAexpectsgreaterresponsibilitytoIFIs• ResponsibiliMes:S29:everyinsMtuMon,itsdirector,chiefexecuMveofficer,seniorofficerormemberofaShari’ahcommiYee
• Offence:S28(6):failuretocomplywiththestandardsisanoffenceundertheAct.
• DutyofCare:IFIscannotsimplyrelyontheirprofessionaladvisorsorexperts.TheIFIsmustensurethattheyhavetakenreasonablemeasures
• PotenMalexposuretoboardordirectors,management,officersandevenShari’ahcommiYeememberswithheavypenalMesincludingimprisonment.
includes: (f)havedueregardtoanydecisionofthe Shariah commi^ee on any Shariah issuerelaMng to thecarryingonofbusiness,affairsoracMviMesoftheinsMtuMon.
(3) Incarryingout itsfuncMonsorduMesunderthisDivision—(a)theboardofdirectorsofaninsMtuMonshallhaveregard to the interests of, as the case may be,depositors,investmentaccountholdersandtakafulparMcipantsofthe insMtuMonorparMcipants
FuncOonsandduOesofboardofdirectors(SecOon65oftheIFSA2013)
KhiudinbinMohd&AnorvBursaMalaysiaSecuri,esBhdandanotherApplica,on[2012]MLJU445
• RohanaYusofJheldthatreliancetoadvisorisnolongeragooddefense.Shesaid:“ACEOandadirectorhavedu,estoexercisecareanddiligenceintheexerciseoftheirfunc,onsinthecompany.Relyingontheexpertdidnotpersedischargedirectorsfromtheirdu,es.Reasonablestepsmustbetakenwhichrequireseachindividualtotakeupuponthemselvestheresponsibili,eswhichcommensuratetheirrolesinrela,ontoreadingandunderstandingthefinancialstatement.Complexi,esandvolumecannotbeanexcuse.”
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ShariahGovernanceFramework• 2.1TheboardisulMmatelyACCOUNTABLE&RESPONSIBLEontheoverallShariahgovernanceframework&ShariahcomplianceoftheIFI,bypuvnginplacetheappropriatemechanismtodischargetheaforemenMonedresponsibiliMes.
• TheboardisalsoexpectedtoperformdiligentoversightovertheeffecMvefuncMoningoftheIFI’sShariahgovernanceframework
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AddiMonalissuesforBoards• BODtohavedueregardtointerestofdepositors,investmentaccountholdersandandpolicyholders
• Comparewithpreviousdutytoonlyactinthebestinterestofshareholders
• PotenMalconflictofinterestbetweenmajorityshareholderanddepositorsorpolicyHolders.
AddiMonalDuMesofBOD
• HigherandwiderstandardsexpectedofboardsofcompaniesunderFSA
• UlMmateresponsibilitymovedtoBoardofDirectors
• ConsumerisminvadestheBoardofDirectors:• Dutytoactinbestinterestsofcompany• Dutytoactinbestinterestsofthirdpartyconsumer
• Dutytopreventbreaches
Consumerism
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• Shallhavedueregardtotheinterestofdepositors,IAHandtakafulparMcipants.
• S6(b):IFIsarerequiredtostrivetoprotecttherightsandinterestsofconsumersofIslamicfinancialservicesandproducts.
• TheBODhastheduMestoactinthebestinterestsoftheIFIsandtoactinthebestinterestsofcustomers.
• Takaful:Establishmentandmaintenanceoftakafulfund,takafulfundstobeseparatefromshareholders’fund,requirementsrelaMngtotakafulfunds,shareholders’fund,withdrawalfromtakafulfundsanddeficiencyoftakafulfunds).
• Ingeneral,theIFSAimposestwostatutoryduOes.• Compliance:(1)aims,operaOons,business,affairsandacOviOes.(2)Internalpoliciesandprocedures.(3)TocarryoutanauditonShariahcompliance.ResponsibiliOes:TheBOD,CEO,SeniorOfficerandShariahCommi^ee.
• ReporOngduty:IFIsarerequiredtoimmediatelynoOfytheBNManditsSCofanynon-ShariahcompliantacOviOesandimmediatelyceasefromcarryingonsuchbusiness,affairoracOvity.Within30days,tosubmittotheregulatoraplanontherecOficaOonofthenon-compliance.
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Statutory Duty
EVERY
InsOtuOon Director CEO Seniorofficer Shariahcommi^ee
• atallMmescomplywiththestandardsspecifiedbyBNM
• toensurethatitsinternalpoliciesandprocedures are consistent with thestandardsspecifiedbyBNM
• tocomplywiththeinternalpoliciesandproceduresadoptedbysuchinsMtuMontoimplementthestandardsspecifiedbyBNM
• to manage its business, affairs andacMviMes in a manner which is notcontrarytoShariah(S.28)
• not to accept appointmentunless havemet the requirements specifiedbyBNMandhasobtainedBNM’spriorwriYenapproval(S.31&64)
• to establish a Shariah CommiYee (S.30)
• insMtuMontonoMfyBNMwithin7daysuponcessaMonofposiMons(S.71) • InsMtuMon and the
member to noMfyBNM within 14 daysupon cessaMon ofposiMon(S.33&34)
• An insMtuMon cannott e r m i n a t e t h eappointment of am e m b e r o f i t sShariah CommiYeewithout priorwriYenapproval of BNM (S.33)
• tohaveaCEO(S.63)
• have due regard toany decision of theShariah commiYee(S.65(2)(f))
• have regard to thei n t e r e s t s o fd e p o s i t o r s ,investment accountholders and takafulparMcipants (S.65(3)(a))
StatutoryDuty:Compliance• S28(1)requiresIFIstoensureatallMmesthattheiraims,operaMons,business,affairsandacMviMesareincompliancewithShariah.
• toensurethatitsinternalpoliciesandproceduresareconsistentwiththestandardsspecifiedbyBNM,tomanageitsbusiness,affairsandacMviMesinamannerwhichisnotcontrarytoShariahandtoestablishaShariahCommiYee
• IFIstocarryoutanauditonShariahcompliance.TheBOD,CEO,SeniorOfficerandShariahCommiYeeshallberesponsibletoensurethatIFIsareatallMmestocomplywiththestandardsspecifiedbyBNM.
Shari’ahCompliance
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• TheIFSAcomplementsandstrengthenstheShari’ahGovernanceFramework.
• PotenMalexposureofShari’ahscholarstojailterms(Firstofitskind).
• StrictcondiMonandvigorousShari’ahcomplianceprocessandrequirements.
• S28(3)toimmediatelynoMfyanyincidentsofShari’ahNon-Compliance,immediatelyceasefromcarryingonsuchbusiness,andwithin30dayssubmitaplantotheBNMontherecMficaMonofthenon-compliance.
• BNMCircularonShariahNon-ComplianceReporMngissuedon15March2013andcameintoeffecton1May2013.
Shari’ahAudit
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• S37and38:ExternalShari’ahAudit• BNMmayrequireanIFItoappointanypersonto
carryoutShariahaudit.• BNM may appoint for an IFI any person to
conductaShariahaudit• TheIFIwillbearremuneraMon&expensesof
theShariahauditor/s.
(3) WhereaninsMtuMonbecomesawarethatitiscarryingonanyofitsbusiness,
affairoracMvityinamannerwhichisnotincompliancewithShariahorthe
adviceof itsShariah commiYeeor theadviceor rulingof theSAC, the
insMtuMonshall—
(a)immediatelynoOfyBNManditsShariahcommiYeeofthefact;
(b) immediatelyceasefromcarryingonsuchbusiness,affairoracMvityand
fromtakingonanyothersimilarbusiness,affairoracMvity;and
(c)within30daysofbecomingawareofsuchnoncomplianceorsuchfurther
period as may be specified by BNM, submit to BNM a plan on the
recMficaMonofthenon-compliance.
DutyofinsOtuOontoensureShariahcompliance(s.28)
StatutoryDuty:ReporMng
• IFIsarerequiredtoimmediatelynoMfytheBNManditsShariahcommiYeeofanynon-ShariahcompliantacMviMesandimmediatelyceasefromcarryingonsuchbusiness,affairoracMvity.TheIFIsarerequired,within30days,tosubmittotheregulatoraplanontherecMficaMonofthenon-complianceasprovidedinsecMon28(3)(c).
• SecMon37requiresIFIstosubmitShariahauditcompliancereport.
BNMCircularonShariahNon-ComplianceReporMng15March2013andcameintoeffecton1May2013
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ActualEvent Poten;alEvent
• Reportshallbesubmi^edonan“immediate”(14 days uponrealizaOon)basis“asandwhen”necessary.
• During this period, the IFIs arer e q u i r e d t o o b t a i n t h econfirmaOon from the ShariahCommi^ee.
• To submit recOficaOon plan, tobe approved by the BOD andtheSCwithin30days.
• Anypendingdecisionby theSCon the idenOfied issue shall betreated as potenOal Shariahnon-complianceevent.
• Report shall be made on amonthly basis based on acalendaryearwhich isnot laterthan 2 weeks aier the end ofeachmonthlyperiod.
BNMCircular:ShariahNon-ComplianceReporOng
NoShariahnon-complianceeventisdetected• WherethereisnoShariahnon-complianceeventinthe IFIs for any parMcular period, the IFIs are sMllrequired to submit the reports on amonthly basiswhich servesas adeclaraMonorofficial aYestaMononthestatusofShariahcomplianceoftheIFIs.
ResponsiblePerson• TheChiefRiskOfficer/seniormanagementinchargeof statutory reporMng of the IFI is responsible andwill be held accountable for the quality andaccuracyoftheinformaMonsubmiYedtotheBank.
InformaOontobeprovidedtoShariahcommi^ee(S35oftheIFSA)
(1) An insMtuMon and any director, officer or controller ofsuchinsMtuMonshall—(a)provideanydocumentorinformaMonwithinitsorhisknowledge, or capable of being obtained by it or him,whichtheShariahcommiYeemayrequire;and (b)ensure that suchdocumentor informaMonprovidedunder paragraph (a) is accurate, complete, not false ormisleading in any material parMcular, to enable theShariahcommiYee to carryout itsduMesorperform itsfuncMonsunderthisAct.
(2)ExceptasprovidedinsecMon36,amemberofaShariahcommiYee shall not disclose any document orinformaMonfurnishedundersubsecMon (1) toanyotherperson.
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ExtendedtoFinancialHoldingCompanies
43
• TheBNMhaspowerstocontrol,superviseandmonitorFHCandtheseincludeauthoritytoissueprudenOalrequirementsanddirecOons.
• S122and123oftheIFSA:FHCrefersto:-• Companiesthatholdsinaggregatemorethan50%
interestinsharesinalicensedenOty;or• Lessthan50%ofsharesbuthas“control”,i.e.power:
• toelect,appointremoveorpreventtheelecOon,appointmentorremovalofamajorityofthedirectorsofthelicensedenOty;
• tomakeorcausetobemadebusinessdecisionsofthelicensedenOty;
StrictLiability• AdirectormaybedeemedguiltyofanoffencecommiYed
byacompany,unlessheprovesthattheoffencewascommi^edwithouthisknowledge,consentorconnivanceandthat
• “hetookallreasonableprecau,onsandhadexercisedduediligencetopreventthecommissionoftheoffenceasheoughttohavetakenprecau,onsortohaveexercised...”(s.241(4),FSA)(inrela,ontocivilac,onsforcompensa,on)
• “heexercisedsuchdiligencetopreventthecommissionoftheoffenceasheoughttohaveexercised,havingregardtothenatureofhisfunc,oninthatcapacityandtothecircumstances.”(s.249(1),FSA)(inrela,ontocriminaloffences)
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StrictLiabilityandDefense
45
• Thewords“deemedtobecommiYed”byDirector,Controller,Officer,Partneroranyoneconcernedwithmanagementofitsaffairs:PresumpMonthattheyhavecommiYedtheoffenceunlessiftheycanproveotherwise.
• TheburdenofproofisuponthemtoshowthattheyhavetakenallreasonableprecauMonsandexercisedduediligence.
• Limittheelementofdefence• (1)theactdonewithoutconsentandconnivanceand
(2)diligentacMontakentopreventcommissionofoffence,ashewouldhaveexercised.
Penalty• TheBNMmayimposemonetarypenaltytoIFIsinthecaseofbreachtocomplyasprovidedinsecMon245(4).
• ThepenalMesprovidedintheIBAjustrangefromafinenotexceedingRM2kforeverydayduringwhichthedefaultconMnuestoRM50korthreetofiveyearsimprisonmentorboth.
• IFSA:thepenalMesprovidedrangefromoneyearto10yearsimprisonmentor5toRM50mfineorboth.Eg.anypersonwhocommitsanoffenceforacMngonbehalfofunlicensedpersonshallonconvicMon,beliabletoimprisonmentforatermnotexceeding10yearsortoafinenotexceedingRM50mortoboth.
PenalMes
• TheIFSAveststheBNMwithwiderangingpowerstoissuestandardswhicharebindinguponeverydirector,officerorShariahcommiYeememberoftheinsMtuMon.
• SecMon28(6)providesthatafailuretocomplywiththestandardsissuedisanoffenceundertheActandcarrieswithamaximumpenaltyof8yearsimprisonmentorafineof25millionringgitorboth.
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PenalOes
48
FormofPenalOes PenalOes
AdministraOve theBNMmaymakeanorderinwriOngrequiringthepersoninbreachtocomplywithorgiveeffecttoortodoornottodoanyactinordertoensurecompliancewithsuchprovision
Monetary suchamountastheBankconsidersappropriate,notexceeding(RM5mil-bodycorporateorRM1mil-individual);
CriminalOffence
Upto10yearsimprisonmentor5-50millionringgitfineorboth
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Offence/BreachS28and29 PenaltyFailuretocomplywithBNMstandardsonShariahmaYers/thatgiveeffecttoSACrulings,rulingofBNMSAC,adviceofSC,Shariahprinciples(ingeneral)
Notexceeding8yearsimprisonmentorRM25Mfineorboth.
Failuretoimmediatelyreport,orceaseShariahnoncompliantacMvity,orsubmitrecMficaMonplaninaccordancewiththeIFSA&Circular
Notexceeding8yearsimprisonmentorRM25Morboth.
FailuretocomplywithBNMstandardsonShariahgovernance
s.245(3),or247,Schedule15(3).-notexceedingRM5Mifbodycorporate/RM1Mifindividual;-shallnotexceed3xthegrossamountofpecuniarygainmadeorlossavoidedasaresultofthebreach;or-shallnotexceed3xtheamountofmoneywhichistheSMofthebreach,whicheverisgreaterforeachbreachorfailuretocomply.
FailuretocomplywithBNMstandardsinrelaMontothebusiness,affair&acMvityofaninsMtuMonforthepurposeofShariahComplianceFailuretoensurethatinternalpolicies&proceduresonareconsistentwithBNMstandards
Failuretocomplywithinternalpolicies&proceduresadoptedtoimplementBNMstandards
Director,controller,officer,partner,managementdeemedliableforoffences.
• OnlydefenceisthatoffencewascommiYedwithoutconsentANDdiligencehasbeenexercisedtopreventitscommission
• DelegaMontoorrelianceon3rdparMesisnotadefence
• CivilacMonscanbebroughtbyanypersonsorinsMtuMonsorbyBNMontheirbehalfagainstanypersonswhocontravenesorisinbreachoftheIFSAprovisions.
StatutoryProtecMon
• theBNMtospecifytheduMesandfuncMonsoftheSC.• SCenjoysstatutoryprotecMonforacMonsforbreachofconfidenMalityprovidedtheyhaveactedingoodfaithinthecourseofthedischargeoftheirduMesandperformanceoftheirfuncMons.
• ShariahcommiYeemembersarealsostatutorilyprotectedfromacMonsfordefamaMoninrespectofanystatementmadebythemwithoutmaliceinthedischargeoftheirduMesassMpulatedinsecMon36(b).
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• Singlelicensedtakafulbusiness.S16oftheIFSArequirestakafuloperatortoseparateitsfamilybusinesswithgeneraltakafulbusiness.(5yearstosplitbothbusiness,familybusinessandgeneraltakafulbusinessintoseparateenOOes).
• S94prohibitsalicensedtakafuloperatorfrommakinganywithdrawalfromatakafulfund,whetherfromthesurplus,orotherwise,ofthattakafulfundunlessallthecondiOonssetoutisfulfilled.
• S91makesitmandatoryfortakafuloperatortoseparatetakafulfundandshareholders’fund.
• S95makesqardorloanprovisioniscompulsorytoeverytakafuloperatorintheeventofdeficitoftheriskfund. 52
NewRequirementsunderTakaful
IFSA 2013 IBA & TA
Express provision to empower the Minister on recommendation of BNM to prescribe certain activities
BNM had implied power to prescribe for certain businesses or activities
Powers of the Bank to prescribe Prudential Requirements – relates to capital adequacy, liquidity, corporate governance, risk management, maintenance of reserve funds, etc.
Provides for business to be conducted in a prudent manner – relates to maintenance of net assets, integrity and skill of business,
IFSA 2013 IBA & TA
‘Fit and Proper’ requirements for directors, etc. – BNM allowed to set and specify requirements in the future
Scope of ‘Fit and Proper’ requirements are laid out in the Acts
BNM empowered to fix breaches of IFSA/ prudential issues. Broader triggers for exercising power. Ministerial approval not required.
Powertostepinwhereinterestsofdepositorsaffected.IntervenMonbyBNMrequiresMinisterialapproval.
IFSA 2013 IBA & TA
Assume control of an institution with approval of the Minister, suspending the powers of the Board. Also, allowed to order the sale of the business or assets, or parts of the business
No direct predecessor. Previously, parties to a transaction could apply to the High Court for approval
Appoint receiver to an Institution
No previous power. Other parties could apply to High Court for such an order.
IFSA 2013 IBA & TA
Requires Ministerial approval on advise by Bank for changes of share control
Changes of control not directly regulated: regulated via requiring changes to holdings of more than 5% to be approved
Bank to order that another company in a corporate group be designated as the group’s ‘financial holding company’, requiring corporate rearrangement.
No power to dictate precise corporate structure
TheLHC• TheLawHarmonizaMonCommiYeeReportformulatedseveralrecommendaMonstoresolveissuesinIslamicfinance.TheCommiYeeisalsostudyingthelegalimplicaMonsontheimplementaMonofIslamicFinancialServicesAct2013.
• TheCommiYeeintroducedseveralnewlegalprovisionsincourtsuchasrulesonimposiMonoflatepaymentchargesonjudgmentdebts,toallowbeYeraccesstoIslamicfinancingforconsumersthroughrecommendedamendmentstoreservelandlegislaMonsatallstates,tofacilitateIslamicfinancinginvolvinglandedpropertythroughrecogniMonofIslamicfinanceintheNaMonalLandCode1965andtoamendtheCompaniesAct1965
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ShariahNon-ComplianceFramework
• TheBNMuMlisesanintegratedsystemknownastheOperaMonalRiskIntegratedOnlineNetwork(ORION)forguidanceontreatmentofShari’ahnon-compliantitems.
• ORIONistheBNMregulatoryreporMngsystemandprocesses.ThissystemenablesefficientreporMngandsupervision.Throughthissystem,theBNMcaneasilymonitorandsuperviseanyShari’ahnon-compliancecasesinIFIs.ItisreportedthatsinceitseffecMvedate,theBNMreceivedmorethan100submissionsfromIFIsforShari’ahnon-compliancereporMngandlessthan21%areactualShari’ahnon-compliance.
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ProfessionalIndemnityInsurance
• theIFSAmakesShari’ahscholarslegallyaccountableandliablefortheirduMesasanyShari’ahcommiYeemembersmaybejailedforuptoeightyearsorfineduptoRM25millionwhichisequivalentofapproximatelyUSD7.6millioniftheyfailtocomplywiththeIFSA.
• ThisseriouslegalimplicaMontriggerstheneedofhavingprofessionalindemnityIslamicinsuranceforShari’ahscholarsasinthecaseofadvocateandsolicitorormedicalpracMMoners.
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ReclassificaMonofDeposit• 30thJune2015wasthedeadlineforIFIstoclearlyseparatebetweenthedepositsaccountandinvestmentaccount.
• IFIsmustintroduceanewstructureofmudharabahinvestmentaccount,whichreflecttheactualcharacterisMcsofinvestment.
• Islamicdepositasprincipalguaranteedandinvestmentasnon-principalguaranteed.Thedepositinsuranceortakafulalsowillbenolongerrelevantforinvestment-typeofaccounts.
• ThereclassificaMonofdepositsisnotfavourabletoIFIs.ThereclassificaMonofdepositsimposesagreatchallengetoIFIstoaccumulatedeposits,whicharebasedonmudharabahprinciple.
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InvestmentAccountPlaxorm• TheIFSArequirementontheseparaMonofIslamicdepositandinvestmentaccountisactuallytoallowthebankstocustomisetheirproductsaccordingtothecustomers'profileandriskappeMte.
• IFIsarenowcanofferhigherreturnstoanyinvestorsfortheirinvestmentaccount.
• TofacilitatethistransiMonperiod,theMalaysiangovernmentbackedtheIAPwithaniniMalstart-upfundforRM150millionandtaxexempMonfor3consecuMveyears.LembagaTabungHajialsoallocatedRM200millionfortheestablishmentoftheShari’ahcompliantRestrictedInvestmentAccount.
• TherearefourIFIshaveparMcipatedintheIAPnamelyBIMB,MaybankIslamic,AffinIslamicandBMMB.
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• TheBNMhasmorepowertodictate-IFIsandanditsholdingcompanyandtheseincludeitsCapitalRequirements,CorporateGovernance,ConsumerProtecMon,Shareholding,IntervenMonandevenShari’ahcompliance.
• PowernotonlytoadvisebutalsotorecommendthedecisionmadebytheMinister.
• TheremustbecertainlegalmechanismtolimitandrestrictsuchauthoriMesandtofindthebestavenuetoreviewandoverseetheBNM’sacMon.
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JudicialOversightovertheBNM
• TheBODofaninsMtuMonshallhaveregardtotheinterestsofdepositors,IAHandtakafulparMcipants.
• TheIFSAseemstopromotestakeholdersvaluebasedapproachinIslamicfinancialinsMtuMonsratherthantheshareholdersvaluemodel.
• PotenMalconflictofinterestbetweenshareholdersandotherstakeholders.
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PotenOalConflictofInterestBetweenShareholdersandOtherStakeholders
• TheelementofstrictliabilityintheIFSAwillexposeIFIswithfurthercostandexpenses.
• VigorousShari’ahcompliancerequirementswillalsoincreasethecostofbusinessandfinallywillaffectthelevelofefficiency.
• SinceprecauMonsandduediligencehavetobeexercisedtopreventthecommissionoftheoffence,anymeasurestomiMgatethislegalriskwillcostaddiMonalexpenses.Eg.ProfessionalIndemnityInsurance.
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Cost and Efficiency
• Heavyregulatedbusinessenvironment-maynegateinnovaMon/lackofinnovaMon/influencethemarketbehaviorandtheplayerswilloptforproductsoflesserconstrains.
• Eg.AllcontractsunderwakalahandmudharabaharedeemedasinvestmentproductsandhencerequireaddiMonaltreatment:DocumentaMon,operaMon,systemandetc.
• Effect:ConcentraMngondebt-basedproductsandconsistentlyneglecMngtheequity-basedproductsbothfromassetandliabiliMessides. 66
InnovaOonofProductandServices
• Exerciseextracare&vigilanceonShariahcompliancema^ersthrougheffecOveinternalShariahcompliancefuncOons:FullinformaOononproducts&transacOons;pre-and-postapprovalmonitoring,supervisingconductofShariahreview&Shariahauditreports;monitoringrecOficaOonmeasures.
• Examineinternalgapstoa^ain“end-to-end”Shariahcompliance;
• ExamineShariahreview&auditreports&implementrecOficaOonplans;
• Assessandadhereinternalpolicies&proceduresandalsoBNMstandards;
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Recommendations
• TheIFSAprovidesaframeworktofacilitatethecreaOonandopOmizeahealthyandviableenvironmentforIslamicfinancesysteminMalaysia.
• DespiteposiOvefeaturesoftheIFSA,thereareloopholes,issuesandshortcomingsthatmaynegateitsobjecOves.
• ThesefactorsfinallymayleadtolackofappeOteforproductinnovaOononthepartofIFIs.
• Consideringthesegreatchallenges,itisrecommendedfortheBNMandtheindustrystakeholderstoreviewanddiscussseriouslytheimplicaOonsandconsequencesoftheIFSA.
• YearsaheadwillbearealtestfortruepotenOalofIslamicfinanceinMalaysia. 69
Concluding Remarks