Omar Mustafa Ansari

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Governance for Islamic mutual fund industry
Omar Mustafa Ansari Head of Islamic Financial
Services Group Ernst Young Ford Rhodes Sidat
Hyder A member firm of Ernst Young Global
Limited
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Outline

• Governance for Islamic Financial Institutions
• Corporate governance What and Why
• Fundamental pillars of corporate governance
• Corporate governance models a comparison
• Islamic corporate governance model
• Governance standards AAOIFI and IFSB
• Principles of governance
• Introduction to IFSB 6 Guiding Principles on
  Governance for Islamic Collective Investment
  Schemes
• Key issues points of focus

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Governance for Islamic financial institutions
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What is corporate governance?
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Why corporate governance?

• Corporate governance is a crucial part of
  financial institutions and banking industry as a
  whole.

• Banks and financial institutions play a
  significant role in the economy and they should
  adhere to strong corporate governance standards
  to
• ensure stakeholders satisfaction and
• confidence in the banking and financial system.

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Impact of good corporate governance
It is all about having a better organization, a
better socially responsible society and a better
financial and economic system.
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Incentives for the financial services industry
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Fundamental pillars of corporate governance
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2
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Fundamental pillars of corporate governance
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4
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Corporate governance models a comparison
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Islamic corporate governance model
Allah SWT proclaims in Quran Men who celebrate
the praises of Allah standing, sitting, and lying
down on their sides, and contemplate the wonders
of creation in the heavens and the earth, (with
the thought) "Our Lord! Not for naught Hast thou
created all this! Glory to Thee! Give us
Salvation from the penalty of the Fire (3 191).
This verse provides fundamental principle of
governance where everything created by Allah has
a purpose and human being is created to be the
worlds vicegerent. By putting a trust to mankind
as a vicegerent, Allah plays actively roles to
monitor and involve in every affairs of human
being and He is aware and knowing everything all
the times.
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Islamic corporate governance model why
different?
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Governance standards AAOIFI and IFSB
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Governance standards issued by AAOIFI and IFSB
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Principles of governance
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Principles of governance
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Principles of governance (Contd.)
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Principles of governance (Contd.)
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Principles of governance (Contd.)
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Comparison of functions Islamic and
conventional financial institutions
Functions Typical financial institutions Additions in IIFS
Governance Board of Directors Shariah Board
Control Internal auditor External auditor Internal Shariah review unit External Shariah review
Compliance Regulatory and financial compliance officers, unit or department Internal Shariah compliance unit
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Summary of governance framework for Shariah
compliance for IFIs
Islamic financial institution
Central Bank
AAOIFI IASB
Shareholders
External Auditors
BOD
SSB
IFSB
AAOIFI Standards
Audit Committee / ACG
Prudential Regulations / Standards
Internal Shariah Audit / Shariah Review /
Shariah Compliance
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IFSB 6Guiding Principles on Governance for
Islamic Collective Investment Schemes
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Islamic Collective Investment Scheme (ICIS)
Definition

• Under the guiding principles, Islamic Collective
  Investment Scheme (ICIS) is defined as any
  financial scheme which meets all of the following
  criteria
• investors have pooled their capital contributions
  in the fund where their share is divided into
  units and the right to share profit or losses in
  the pool
• fund is established and managed in accordance
  with Shariah rules and principles and
• it is a separate entity in terms of financial
  assets and liability.

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Principles set out by the IFSB 6
Part I
Part II
Part III
Part IV
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Key issues point of focus
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Key issues organs of governance and Shariah
compliance controls at entity level

• BOD / Audit Committee additional functions
• HR
• Hiring
• Training
• Shariah compliance function
• Resources
• Reporting line
• Independence vs. product development

• Shariah Audit
• Internal
• External
• Supervisory
• Policies, procedures and systems
• Shariah Rating
• Shariah compliance
• Fiduciary responsibility

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Key issues focus required SSB and SAs

• Right forum board or advisor
• Right responsibilities
• Support
• Advise
• Supervise
• Judge and decide
• Report
• What to?
• How to?

• Independence
• Objectivity state of mind / from the heart
• Influence
• Teachers / school of thoughts
• Peers
• Management
• Capability

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Thank you