‘The New Islamic Financial Services Act 2012’

The new Islamic Financial Services Act 2012 (IFSA) will statutorily enforce management of Shariah-non-compliance risk and requires Islamic financial institutions to ensure at all times that their aim, operation, business, affairs and activities are in compliance with Shariah.
This is perhaps one of the distinctive features of the IFSA 2012, says Prof Datuk Dr Rifaat Ahmed Abdel Karim, CEO of International Islamic Liquidity Management Corporation.

Prof Rifaat delivering his lecture at the INCEIF Auditorium.
The Act, which is pending the Royal Asset, requires that any failure to abide by this statutory requirement has to be immediately notified to the regulator, i.e. BNM, and the Shari’ah committee of the financial institution. Furthermore, the financial institution is required immediately to cease carrying on the business or activity which is the cause of the non-compliance, and within 30 days to submit to the regulator a plan for the rectification of the non-compliance.

Any person, including a financial institution or its directors, controllers or officers that contravene these requirements is considered to have committed a criminal offence. Most rectification plans would generally require any profits made from the business or activity to be donated to charity. In addition, any affected customer would have a right of civil redress against the financial institution.

“This strict provision is in line with the principal regulatory objectives of the Act, which aims to promote financial stability and compliance with Shari’ah,” said Prof Rifaat when delivering his lecture on `The Significance of Supervision and Regulation in Islamic Finance’ at INCEIF Public Lecture series held at INCEIF campus. The lecture was jointly organised with Abdullah Chan Advocates & Solicitors.

Another speaker at the lecture, Mr Gopal Sundaram of Abdullah Chan, briefly brought the audience through the expected salient points of the new Act. He was BNM’s Project Advisor for IFSA 2012.

Mr Gopal delivering his lecture at the INCEIF Auditorium.
Islamic banking was formally introduced in Malaysia with the enactment of the Islamic Banking Act 1983, the Government Investment Act 1983 and the Takaful Act 1984 by the Malaysian Parliament.

(from left) Prof Rifaat, INCEIF CAO Datuk Syed Othman Alhabshi and Mr Gopal at the Press conference.
Since then, Malaysia’s continued and resolute focus in developing leading edge services and products, robust regulatory infrastructure with strong global integration and skilled talent in managing and innovating Shariah compliant products, has resulted in the country becoming the world’s most important Islamic finance centre.

More than two decades after the enactment of the Islamic Banking Act 1983, a new legal framework has been drawn up and is now pending the Royal Assent. To be called the Islamic Financial Services Act 2012, the Act seeks to provide for the regulation and supervision of Islamic financial institutions, payment systems and other relevant entities. It will also cover the oversight of the Islamic money market and Islamic foreign exchange market to promote financial stability and compliance with Shariah.

The new legal framework will not only streamline the legal requirements across sectors, but will also ensure that the law is reflective of the nature and features of Shariah contracts and that the degree of regulation will commensurate with the level of risks that Islamic financial institutions, markets and products pose to the overall financial system.

The new Act, which is expected to come into force sometime this year, seeks to consolidate the Islamic Banking Act 1983 and the Takaful Act 1984. The new Act when it comes into force will be a landmark law, perhaps the only omnibus Islamic ¬finance legislation in the world. The Act will lay the foundation for a comprehensive regime to promote a robust and resilient Islamic fi¬nancial system in Malaysia.

Recognising the need to educate and inform the industry players on the new Act, INCEIF The Global University of Islamic Finance and Abdullah Chan Advocates & Solicitors have jointly organised a Public Lecture on ‘The New Islamic Financial Services Act 2012’.

As a university which focuses on industry needs, INCEIF will continue to provide the linkage between the industry and academia through intellectual discourses on current issues affecting the Islamic financial services industry.

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