Bahrain's central bank is considering guidance covering Islamic windows, investment accounts and whether to develop a benchmark rate for use by Islamic banks, a senior executive said in a report released on Tuesday.

Bahrain's regulator was the first to issue rules covering sharia-compliant banking and insurance, and its efforts are often followed by other jurisdictions seeking to promote the sector.

Bahrain's central bank has already tightened governance rules for Islamic banks, requiring them to undergo independent external audits, and introduced a more stringent framework for the sharia boards that vet their activities.

The regulator is now developing implementation guidelines for some of these compliance functions, Khalid Hamad, the central bank's executive director of banking supervision, said in a report published by Thomson Reuters.

The existing governance rules apply to fully-fledged Islamic banks but the central bank is considering whether to extend them to cover the Islamic units of conventional banks, which are commonly known as Islamic windows.

"Currently, Islamic windows are outside the ambit of the SG (sharia governance) module. In the future, we would like to cover them as well," said Hamad.

The central bank is also studying practices of Islamic retail banks regarding pool management and profit distribution to their depositors, known as investment account holders (IAHs).

"We would like to develop regulations that ensure fair treatment to IAHs as they are very important stakeholders for an Islamic bank."

The central bank is also considering a better performance benchmark rate for use by Islamic banks, to replace the current practice of using the interbank rate for sharia-compliant financings, Hamad said.

In recent years regulators in the Gulf and Southeast Asia have increased their oversight of how Islamic banks follow Islamic principles, which include bans on interest payments and pure monetary speculation.

(Reporting by Bernardo Vizcaino; Editing by Simon Cameron-Moore) ((; Telf: +61293218168; Reuters Messaging: