Shari'ah Non-compliance Risk Management and Legal Documentations in Islamic Finance

A comprehensive guide to one of the key risk management issues in the expanding field of Islamic finance

For Islamic financial institutions, Sharia non-compliance is a growing and key risk that must be carefully managed. This book offers a thorough look at non-compliance risk and explains the legal documentation necessary to ensure compliance for professionals in the Islamic finance industry. In addition, the book offers helpful guidance and understanding for the legal departments of Islamic financial institutions, as well as lawyers, legal firms, Shariah advisors, Shariah officers, and students studying Islamic finance. The book covers fundamental concepts, major risk elements, tools and techniques for identifying non-compliance, legal documentation, and the impact of non-compliance, among other vital topics.

• Offers comprehensive coverage of the growing field of non-compliance risk management in Islamic finance

• Includes in-depth coverage of legal documentation

• Written by an expert on the topic who teaches at INCEIF, The Global University for Islamic Finance and IIUM, International Islamic University of Malaysia in Malaysia

Auteur

Associate Professor AHCENE LAHSASNA PhD, CIFP, ACIP, RFP,
Shariah RFP, Shariah Advisor is currently
a lecturer at the International Centre for Education in Islamic
Finance (INCEIF) Malaysia, known as the Global University of
Islamic Finance. He is also the Graduate Studies academic advisor
at the same university. He received his bachelor's degrees in
Islamic law and Islamic jurisprudence from Algeria, and his
Master's and PhD degrees in Islamic law and Islamic jurisprudence
from IIUM (Malaysia). Dr. Lahsasna is equipped with industry
qualifications as follows: Certificate Islamic Capital Market
Shariah Advisor (I Advisor), offered by the Securities Industry Development Corporation (SIDC), Securities Commission Malaysia; Certificate Islamic Capital Market (sukuk and structured products), offered by the SIDC, Securities Commission Malaysia; Chartered Islamic Finance Professional (CIFP), offered by INCEIF; Registered Financial Planner (RFP) and Shariah RFP,
offered by MFPC. Dr. Lahsasna is also a member of the ACIFP,
Association of Islamic Finance Professionals, and National Council
of Malaysian Financial Planning. Currently, Dr. Lahsasna is a
registered Shariah advisor at Bank Negara Malaysia and Securities Commission Malaysia; serves as Shariah
board member of Maybank Islamic, Etiqa Takaful in Malaysia, and RGA
Re-Takaful based in Labuan; is on the Shariah Advisory Council of MFPC; and is chairman of Takaful and Shariah RFP
at MFPC, Malaysia. Dr. Lahsasna has been appointed by the Finance
Agency Accreditation as FAP (FAA Accreditation Panel).

Contenu

Foreword ix

Acknowledgments xi

About the Author xiii

Introduction 1

Chapter 1: Fundamental Concept of Shari'ah and Shari'ah Non- Compliance Risk 5

1.0. Introduction 5

1.1. Concept of Shari'ah 5

1.2. Compliance in the Islamic Financial Institutions: An Overview 6

1.3. Concept of Risk 11

1.4. The Concept of Shari'ah Non-Compliance Risk 12

1.5. Review of the Concept of Shari'ah Non-Compliance Risk 17

1.6. Features of Shari'ah Non-Compliance Risk 19

1.7. Shari'ah Non-Compliance Risk Events 19

1.8. The Shari'ah Basis for Shari'ah Compliance 25

Chapter 2: Shari'ah Compliance in IFSA 2013 and Classification of Shari'ah Non-Compliance Risk 29

2.0. Introduction 29

2.1. Provisions Unique to Islamic Banks in IFSA 2013 29

2.2. Shari'ah Compliance in IFSA 2013 31

2.3. Classification of Shari'ah Non-Compliance Risk 41

Chapter 3: The Major Risk Elements of Shari'ah Non-Compliance Risk and Its Causes in Islamic Finance Operations 43

3.0. Introduction 43

3.1. The Major Risk Elements of Shari'ah Non-Compliance Risk 43

3.2. The Causes of Shari'ah Non-Compliance Risk in Islamic Finance Operations 68

Chapter 4: Tools and Techniques to Identify Incongruence in Shari'ah Compliance 73

4.0. Introduction 73

4.1. Tools 73

4.2. Techniques 83

Chapter 5: Understanding the Shari'ah Requirements for Mitigating the Shari'ah Non-Compliance Risk in Islamic Finance 85

5.0. Introduction 85

5.1. The Fundamental Islamic Principles in Islamic Contracts 85

5.2. The Fundamental Islamic Financial Transactions Used in Islamic Finance 90

Chapter 6: Lines of Defences for Shari'ah Non-Compliance Risk Management 101

6.0. Introduction 101

6.1. The First Line of Defence: Product Owner 101

6.2. The Second Line of Defence: Management of the IFI 107

6.3. The Third Line of Defence: Shari'ah Risk Management 109

6.4. The Fourth Line of Defence: Shari'ah Management 112

6.5. The Fifth Line of Defence: Shari'ah Committee/Board 112

6.6. The Sixth Line of Defence: Board of Directors 123

6.7. The Seventh Line of Defence: Shari'ah Advisory Council (SAC), Bank Negara Malaysia (BNM)/Authorities 129

6.8. The Eighth Line of Defence: Shari'ah Review 130

6.9. The Ninth Line of Defence: Shari'ah Audit 144

6.10. The Tenth Line of Defence: Public 154

Chapter 7: Shari'ah Non-Compliance Reporting 157

7.0. Introduction 157

7.1. Objective 157

7.2. Applicability 158

7.3. Legal Provisions 158

7.4. Reporting Requirements 159

7.5. Reported as Potential Shari'ah Non-Compliance Event 159

7.6. Submission of Reports on Actual Shari'ah Non-Compliance Events 160

7.7. Timeline for Actual Shari'ah Non-Compliance Reporting 160

7.8. Potential Shari'ah Non-Compliance Event 161

7.9. Timeline for Potential Shari'ah Non-Compliance Reporting 161

7.10. No Shari'ah Non-Compliance Event Is Detected 162

7.11. Process Flow for Authentication or Confirmation of Shari'ah Non-Compliance in the IFIS 163

Chapter 8: Legal Documentations in Islamic Finance 165

8.0. Introduction 165

8.1. Introduction to Legal Documentation 165

8.2. Law Related to Islamic Banking 166

8.3. General Principles in Legal Documentation 167

8.4. Legal Documentation: Definition and Shari'ah Concern 167

8.5. Incorporation of Shari'ah Requirements into Legal Documentation 167

8.6. The Main Functions of the Legal Documentation 169

8.7. Areas in Legal Documentation under Consideration and Review 169

8.8. Potential Area of Shari'ah Non-Compliance Risk 190

Chapter 9: Drafting Legal Documents 209

9.0. Introduction 209

9.1. Structure of the Legal Agreement/Contract 209 9.2. Tips fo...