ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has asked all Islamic financial institutions to establish Shariah compliance units as well as hire internal and external auditors.

According to the SECP’s guidelines to Islamic financial institutions on Friday, every Islamic financial institution is encouraged to establish a Shariah compliance unit headed by a Shariah compliance officer suitably qualified, trained, and experienced in the field of Islamic finance.

The Shariah compliance unit can work under the overall guidance and supervision of Shariah supervisory board, with parallel reporting to the head of the compliance department or internal audit department, as the case may be.

Procedure for turning usual financial institutions into Islamic ones explained

The Shariah compliance officer can coordinate between the Shariah advisor, the Shariah advisory board, and management and may be entrusted with responsibility for review all the product proposals and related agreements, contracts, manuals, and process flow before presenting these to the Shariah supervisory board for approval ensure that the operations of Islamic financial institutions are in conformity with Shariah principles and rules and periodically submit a Shariah compliance report to the management on the overall Shariah compliance environment.

The SECP further directed that every Islamic financial institution is encouraged to strengthen its internal audit department, either by appointing an internal Shariah audit resource having relevant qualifications or expertise in the field of Islamic finance or by training at least one of its employees in the internal audit department for the purpose of internal Shariah audit from a reputable training institute.

Copyright Business Recorder, 2023