ISLAMABAD: The Securities and Exchange Commission of Pakistan on Wednesday issued a detailed procedure for the conversion of financial institutions into Islamic financial institutions.
In a landmark development for the growth of Islamic finance in the non-bank financial sector, the SECP has issued guidelines for offering Islamic Financial Services, 2023, covering all its regulated sectors.
Issuance of these guidelines is part of SECP’s resolve to promote and develop an Islamic financial system in line with the constitutional objective of the Islamisation of the economy in light of the recent judgement of the Federal Shariah Court.
In the event that a conventional financial institution intends to convert itself into an Islamic financial institution, either all at once or in phases, it may do so through the laid down process. Firstly, the financial institution will initiate the conversion process with the approval of the board of directors and it would form a dedicated team, function, or department to prepare the conversion plan and spearhead conversion activities.
The financial institutions will prepare a conversion plan in light of the Shariah principles and rules and the Shariah screening criteria provided in the Shariah Governance Regulations, 2018. It will also appoint or engage a Shariah supervisory board to review and vet the conversion plan and oversee its implementation.
The financial institution will obtain approval of the conversion plan from the board of directors, if required, and may voluntarily intimate the Commission for information and disclose the approved conversion plan to the relevant stakeholders.
During the execution of the conversion plan, the Shariah supervisory board may be mandated to oversee its progress and report any issue concerning Shariah compliance to the board of directors for necessary corrective action.
After meeting the Shariah screening criteria provided in the Shariah Governance Regulations 2018, the financial institutions may seek and obtain a Shariah compliance certificate as provided in the said regulations.
The guidelines are framed to facilitate growth of Shariah-compliant financial products in the financial services market regulated by the Commission, which include Islamic capital markets, Takaful, Modarabas, NBFCs, pension and private funds, REITs, and so on.
The guidelines are based on notions of proportionality and gradualism and cover key principles for the conduct of Shariah-compliant operations by persons offering Islamic financial services. It also introduces the concept of “Islamic windows” in all regulated sectors, apart from providing detailed guidelines for the conversion of conventional financial institutions into Islamic financial institutions.
Another essential aspect covered in the guidelines is the foundational principles for developing cohesive Shariah governance within Islamic financial institutions.
Copyright Business Recorder, 2023