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Islamic Financial Services Board (IFSB)

www.ifsb.org. Islamic Financial Services Board (IFSB). Mutual Insurance and Takāful in a Changing World 12-13 November 2012 | 27-28 Zulhijjah 1433 Ceylan Intercontinental Hotel Istanbul, Turkey. AGENDA. About the IFSB. Takāful. IFSB Initiatives on Takāful. About the IFSB. 3.

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Islamic Financial Services Board (IFSB)

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  1. www.ifsb.org Islamic Financial Services Board (IFSB) Mutual Insurance and Takāful in a Changing World 12-13 November 2012 | 27-28 Zulhijjah 1433 Ceylan Intercontinental Hotel Istanbul, Turkey

  2. AGENDA About the IFSB Takāful IFSB Initiatives on Takāful

  3. About the IFSB 3

  4. BCBS (Banking) SPECIFICITIES OF ISLAMIC FINANCE IOSCO (Capital Markets) IAIS (Insurance) About the IFSB • Introduction • Based in Malaysia, officially inaugurated on 3 November 2002, and started operations on 10 March 2003 • Serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and Takāful • To this end, the work of the IFSB complements BCBS, IOSCO and IAIS 4

  5. Members of the IFSB 52 8 127 Membership as at 29 March 2012 5

  6. IFSB Initiatives

  7. IFSB Central Focus Banking Takāful (Islamic Insurance) Capital Market 7

  8. Takāful 8

  9. About Takāful Takāful Core Principles Tabarru’ Commitment (Maisir, Gharar) Ta’awun (Mutual Cooperation) Prohibition of Riba’ (Usury) 9

  10. Participants’ Risk Fund Conventional Insurer • Tabarru’ / Donation • agreement • Sale and purchase • agreement • Risk sharing among • participants • Risk transfer from • policyholder to insurer • Shariah-compliant • investment activities • No restrictions on • investment activities • Claims is paid from • the Participants’ Risk • Fund • Insurer is liable to pay • claims from • underwriting fund / • Shareholders’ fund • Fund is owned by • participants • Fund is owned by • shareholders Takāful vs Conventional Insurance Takāful Participant Policyholder Donation Risk Premium Claims Claims Takāful Operator Manage Fee 10

  11. Fund Ownership • Issues on Solvency • Issues on Qard • Issues on Surplus Sharing • Accounting Treatment • Consolidation versus • combination of financial • statements • Investment • Restricted investment • activities • Fiduciary Duties • Duties towards respective • stakeholders • Shariah Compliance • Various resolutions on • similar issue (eg Retakāful) • Operator’s Fee • The extent of allowable • deduction from contribution Takāful vs Conventional Issues arising from the differences 11

  12. IFSB Initiatives on Takāful 12

  13. Regulations for Takāful Joint Paper August 2006 “Issues in Regulation and Supervision of Takāful (Islamic Insurance)” Prudential Regulations for Takāful (Islamic Insurance) • Corporate Governance • Financial and Prudential Regulation • Transparency, Reporting and Market Conduct • Supervisory Review Process 13

  14. Prudential Regulations for Takāful (Islamic Insurance) Regulations for Takāful IFSB-8: Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings GN-5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings ED-14: Standard on Risk Management for Takāful (Islamic Insurance) Undertakings (Exposure Period: 1 Nov ‘12 – 31 Mar ’13) 14

  15. Regulations for Takāful IFSB-8: Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings Principle 1.1 Principle 1.2 Governance Framework Code of Ethics and Conduct Principle 2.1 Principle 2.2 Procedures of Proper Disclosure Governance Structure for Participants Principle 3.1 Principle 3.2 Mechanism to Sustain Solvency Sound Investment Strategy 15

  16. Regulations for Takāful IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings 7 Key Features • Total Balance Sheet Approach • Adequate Solvency Resources • Establish Solvency Control Levels • Quality and Suitability of Solvency Resources • Comprehensive RM Framework • Supervisory Review of RM Framework • Public Disclosure of Solvency Information 16

  17. Regulations for Takāful GN-5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings Criteria for Recognition • Explain Meaning and Methods • Produce Accurate Ratings • Produce Analytic Clarity and Competence • Ratings should be Robust & Independent • Sound Resources & Financial Condition 17

  18. Takāful - Looking Forward Our way forward: • Tentative areas to be covered: • Issues on Retakāful • Capital Adequacy • Stress Testing 18

  19. THANK YOU Kartina Md Ariffin kartina@ifsb.org Member of the Secretariat Technical and Research

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