THERE needs to be tighter regulations and standards against prudential risks of financial institutions, a Ministry of Finance official yesterday said.
In opening a workshop on capital adequacy, transparency and market discipline among finance players, Sigar Labau, assistant director of the ministry’s Financial Institutions Division, said capital adequacy, transparency and market discipline are some of the aspects of banking that has “profound importance” following the aftermath of the recent financial crisis.
The workshop is conducted by representatives from the standard-setting Islamic Financial Services Board (IFSB).
“The international standard-setters, like the IFSB, are today, fine-tuning their existing regulatory framework, to capture the risks that were largely unregulated, and which caused this crisis,” Sigar said.
IFSB promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors.
“We are here to assist the supervisory authorities, or the market players, to see how they could have the right capital for their operations, while at the same time providing Islamic financial services,” said Abdelilah Belatik, assistant secretary-general for the IFSB. “Basically, what we do is we look at standards which are issued by the banking committee, and we see how that would impact Islamic banking and finance, and we come up with our own standards, which are valid for Islamic and finance.”
He added that at the moment, most of the conventional banks are following the international Basel II capital rules. “If the Islamic banks need to implement that in their country, it would not fit a hundred per cent to Islamic finance activities, because Islamic finance has some uniqueness which is why we use the IFSB standards to help cater to these specific activities and come up with the right calculations for the adequacy requirements,” he said.
During the presentation, some of the concerns that were raised included the way the balance sheet of Islamic finance players differs from the conventional banking balance sheet.
Asked about the technicality issues that were raised, Abdelilah said that this won’t be an issue in trying to introduce new standards because “whenever something is new, there are issues, but that there are larger choices and solutions that they can help provide”.
“We work with the Ministry of Finance, and banks, to show and assist them on how to deal with that, and we are really happy to see that we have good interactions with the participants, and with them raising their concerns,” he said.
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