By Bernardo Vizcaino
May 21 (Reuters) - The Kuala Lumpur-based Islamic Financial Services Board (IFSB) is preparing guidelines for Islamic capital market products, retakaful (Islamic reinsurance) and stress testing, as the industry body tightens oversight of market practices.
IFSB guidelines allow national financial regulators to have the final say on how they apply standards, but its prescriptive approach is gradually helping to harmonise practices across the industry's core centres in the Middle East and southeast Asia.
In April, the IFSB released guidance on liquidity risk management, clarifying the tools Islamic banks can use to meet Basel III capital adequacy requirements.
Efforts will now focus on guidance for capital market products with an emphasis on sukuk, or Islamic bonds, the IFSB said in its annual financial stability report.
Disclosure requirements will be a key area of focus, including the financing structures used and the rights of investors over the underlying assets.
Future guidance would address how to identify religious scholars which advise on such transactions and how much detail is needed relating to their endorsement of products.
Disclosures would also address risks in case the sharia compliance of the underlying activity changes, and whether sukuk are to be treated as a debenture or equity in terms of financial recourse, foreclosure or financial claim.
The IFSB has also started work on guidance for retakaful, which is targeted to be completed next year and would adress areas such as governance, transparency and supervisory review.
A widening market for sharia-compliant insurance products is helping move the sector away from long-standing reliance on conventional reinsurance lines.
The IFSB is also considering whether to review existing guidance on solvency requirements for takaful operators.
A technical note on stress testing is also in the pipeline to complement original guidance issued in 2012, the IFSB said.
(Editing by Eric Meijer) ((Bernardo.Vizcaino@thomsonreuters.com; Telf: +61293218168; Reuters Messaging: bernardo.vizcaino.thomsonreuters.com@reuters.net))
Keywords: ISLAM FINANCING/IFSB
