www.bt.com.bn - THE Islamic Financial Services Board (IFSB) is revising its capital adequacy standard to meet the requirements of the Basel III framework for financial institutions, the secretary-general of the international standard-setting body said here recently.
The revision to the IFSB-2: Capital Adequacy Standard started in January 2011, following the introduction of the Basel III the previous year, which was a response to the 2008-2009 financial crisis that saw governments bail out major banks across the world. (source)
The revision to the IFSB-2: Capital Adequacy Standard started in January 2011, following the introduction of the Basel III the previous year, which was a response to the 2008-2009 financial crisis that saw governments bail out major banks across the world. (source)
The new Basel framework called for banks to hold much higher levels of capital, as a buffer to absorb losses in preventing a repeat of future crises.
"This includes an increase in the minimum common equity requirement from two per cent to 4.5 per cent, and a capital conservation buffer of 2.5 per cent, bringing the total common equity requirement to seven per cent," Jaseem Ahmad said while opening an IFSB-organised seminar in Gadong on Tuesday.
The revisions to IFSB-2, he added, will not only be an update to the previous standard, but will also take into account the requirements in Basel III introduced by the Swiss-based committee of the same name.
"Overall, the final document will aim to provide a more comprehensive guidance to supervisory authorities on application of capital adequacy regulations for institutions offering Islamic financial services (IIFS)," the IFSB secretary-general said.
The revision process has also led to the "discovery" of a number of shortfalls in the IFSB-2, such as in the components of capital, credit risk mitigation techniques, Profit Sharing Investment Accounts (PSIAs), and Syariah-compliant alternatives to derivatives.
"The existing IFSB-2 does not cover the various components of capital. The revised document intends to provide guidance on these various components in line with that proposed in Basel III," he said.
Issues related to the "appropriate" treatment of subordinated debt, hybrid capital, convertible contingent capital and Syariah-compliant instruments or Sukuk that can be considered a part of capital also needed to be ironed out further with stakeholders in the IIFS industry.
New instruments that were issued and suggested to mitigate credit risk in the existing IFSB-2 and the previous IFSB-1 needed to be assessed on their compliance to Syariah, Jaseem said.
"Further clarity" was also needed on contracts treated similarly to Mudarabah-based PSIA.
Meanwhile, the secretary-general noted that some IIFS have engaged in Syariah-compliant alternatives to derivatives such as foreign currency swaps and profit rate swaps. He questioned the rationale behind this and the differences with the derivatives used in conventional banking.
Apart from the revision to the IFSB-2, the secretary-general shared that the international body was in the process of finalising two guiding principles on liquidity risk management and stress testing, to comply with the Basel III framework.
A standard on risk management for Takaful undertakings was also being drawn up by IFSB.
With all these initiatives in place, Jaseem called on the relevant national regulatory authorities to "effectively enforce" the standards and guidelines issued by the international body.
To facilitate this, the IFSB held, as part of its awareness programmes, seminars such as the two-day Seminar on Emerging Syariah Issues on Regulatory Capital and Risk Management in Islamic Banking, which concluded yesterday at The Rizqun International Hotel in Gadong.
To date, IFSB has introduced 11 Standards and Guiding Principles, five Guidance Notes and one Technical Note since its establishment in 2002.
The Brunei Times
No comments:
Post a Comment