ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has decided to develop Islamic finance ecosystem in securities and futures markets.
According to a new SECP report issued on Wednesday, the reputation and credibility of Islamic financial institutions rely on their ability to adhere to Shariah injunctions. Globalization and internationalization in Islamic finance have accentuated the need to create standardization and harmonization in Shariah practices, their accounting treatments, and governance in an integrated framework across the globe.
Consistency in Shariah practices and their accounting treatments is instrumental in strengthening the trust of the general public and paving the way for positive public perception.
At the moment, the focus of standardization is limited to the adoption of Shariah standards on a need basis. Over the period of experimentation and regulatory interventions around the globe, it has been found that this strategy for adoption deployed to bring standardization to Islamic financial institutions is less effective and marginally efficient.
The existing strategy lacks comprehensiveness as it largely relies on the adoption of Shariah standards only. It further ignores the integration between Shariah, governance, and accounting standards, which is necessary for the credible functioning of Islamic financial institutions.
Lastly, this strategy offers a very passive and less interactive process of adoption regarding industry feedback and doesn’t effectively contribute to the industry's readiness for standardization to its true potential.
A paradigm shift in the strategy for adoption of global standards, is therefore, inevitable. A holistic approach for adoption consisting of a full range of relevant Shariah, accounting, and governance standards deployed in line with global best practices is desired.
The adoption will be attempted in an integrated framework to ensure the smooth operation of Islamic financial institutions with increased confidence and credibility. Considering the maturity level of the Islamic finance industry within regulatory domain of the SECP and to address practical difficulties in implementation of standards, a staggered approach, is required to be developed and implemented.
The plan, therefore, envisages the development and implementation of a comprehensive strategy to adopt global standards and principles, aiming to increase the adoption of AAOIFI’s standards and IFSB’s principles. This will also involve exploring suitable options for adopting accounting and auditing standards for Islamic financial transactions, as well as developing sample Shariah structures and agreements for the issuance of Shariah-compliant securities.
Additionally, efforts will be made to enhance market capacity for understanding and implementing AAOIFI’s Shariah standards and
IFSB Principles, promoting consistency and best practices in Islamic finance. Accordingly, the SECP aims to achieve greater standardization in the Islamic financial industry, SECP report added.
Copyright Business Recorder, 2024