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

Chapter 7

Sharī`ah Non-Compliance Reporting

7.0. INTRODUCTION

Regarding Sharī`ah non-compliance reporting, a circular was issued by the Central Bank of Malaysia on March 15, 2013. The effective date of the circular was May 1, 2013.1

7.1. OBJECTIVE

Bank Negara Malaysia (the Bank) places great importance on ensuring that the Islamic financial system operates in accordance with Sharī`ah. In meeting this objective, compliance with Sharī`ah has become an integral aspect in the operations and business conduct of the Islamic financial institutions (IFIs).

Paragraph 2.17 of the SGF for IFIs (the framework) stipulates that it is the duty of the IFIs to inform its board of directors (the board), the Sharī`ah committee, and the Bank in the event that the IFIs have become aware that certain operation of the IFIs is found to be Sharī`ah non-compliant:

In the event the management becomes aware that certain operations are found to be carrying out business(es) which is(are) not in compliance with Sharī`ah, or against the advice of its Sharī`ah Committee or the rulings of the Sharī`ah Advisory Council of the Bank (SAC), the management shall:

I. Immediately notify the board and Sharī`ah Committee as well as the Bank of the fact;

II. Immediately cease to take any new business related to the Sharī`ah non-compliant business; and

III. Within thirty (30) days of becoming aware of such non-compliance or such further period as may be permitted by the Bank, furnish a plan to rectify the state ...