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

Chapter 2

Sharī`ah Compliance in IFSA 2013 and Classification of Sharī`ah Non-Compliance Risk

2.0. INTRODUCTION

The legal amendments in the law represent a milestone that takes Islamic finance in Malaysia to the next level. The new legislation emphasizes Sharī`ah compliance and establishes Sharī`ah certainty, responsibility, and accountability. The Islamic Financial Services Act (IFSA) shall replace both Islamic Banking Act (IBA) 1983 and Takaful Act 1984 (Section 282). IBA, enacted in 1983 (30 years ago), was based on the old Banking Act of 1973. In 1989, the Banking Act 1973 for conventional banks was replaced with the more comprehensive BAFIA. However, IBA was never upgraded until the recent passing of the IFSB. Hence, most of the laws are new to the industry but largely already known in the form of regulations/guidelines from the central banks. IFSB is generally similar to the Financial Services Bill 2012 (FSB) but with specific sections unique to in catering to the Islamic banking business.

2.1. PROVISIONS UNIQUE TO ISLAMIC BANKS IN IFSA 2013

2.1.1. Islamic Banking Business

Previously, Islamic banking was defined by the IBA as “banking business whose aims and operations do not involve any element that is not approved by the religion of Islam.” Now under IFSA, it is defined as:

1. Accepting Islamic deposit with or without the business of paying or collecting cheques.

2. Accepting money under an investment account.

3. Provision of finance.

4. Such other business as prescribed ...