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10 April, 2014

The IFSB's 6th Seminar Legal Issues Discussed Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges

Kuala Lumpur, 10 April 2014 - The Islamic Financial Services Board (IFSB) successfully organised the 6th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry (IFSI), themed, Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges on 25 March 2014 in Bandar Seri Begawan, Brunei Darussalam. This Seminar is organised in conjunction with the I

Kuala Lumpur, 10 April 2014 - The Islamic Financial Services Board (IFSB) successfully organised the 6th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry (IFSI), themed, Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges on 25 March 2014 in Bandar Seri Begawan, Brunei Darussalam. This Seminar is organised in conjunction with the IFSB Annual Meetings and Side Events 2014, and hosted by the Autoriti Monetari Brunei Darussalam (AMBD).

This Seminar is a part of the IFSB seminar series on legal issues in the Islamic financial services industry, and aimed to create awareness on the emerging legal issues, developments and challenges in securitisation and Islamic hedging instruments.

Mr. Rosdi Amin bin Dato Paduka Haji Yaakub, Deputy Managing Director, Monetary, Corporate Services and Development of the AMBD, in his speech highlighted the important role these seminars play in developing the legal infrastructure for the Islamic financial services industry. He also enlightened the audience about the incentives and steps that Brunei Darussalam has taken towards the harmonisation of legal, regulatory and Shari`ah standards in the country. These incentives are taken based on the understanding that Islamic finance has to be seen as an essential component of global financial system. He also stressed the need for an adequate legal system to facilitate the development of Islamic finance in general and Islamic securitisation in particular.

Dato' Dr. Nik Ramlah Mahmood, Deputy Chief Executive of Securities Commission Malaysia, in her keynote address, outlined the key roles of securitisation within the financial system by injecting the needed funds into the economy. Securitisation, however, "had to bear the blame for the global financial crisis, due to among others to the securitisation of subprime loans, and complex products". Nevertheless, securitisation should not be discarded as it will affect prospects for the long-term financing of the economy, "and thankfully, this is being realised by regulators and policy-makers worldwide". Noting that Islamic asset securitisation did not suffer the stigma of the sub-prime crisis, she observed that the sector continues to grow in various markets, especially in South East Asia and GCC. Despite the issuance of innovative securitised instruments such as structured covered Sukuk and Sukuk with underlying assets such as Takaful policies or housing finance assets, she acknowledged the need for more to be done to ensure an appropriate and facilitative legal environment for this market to develop further. Furthermore, for legal clarity, issues such as bankruptcy remote entity, ownership transfer, cross-border taxation and accounting policies should also be addressed. "Therefore", she reiterated that, "continuous dialogue and coordination between the relevant institutions and government agencies are vital to ensure consistencies in rules and regulations formulated within the securitisation framework". Dato' Dr. Nik Ramlah concluded her remarks by underlining the golden window of opportunity for Islamic securitisation post global financial crisis, as "by its very nature Islamic securitisation offers all the benefits of securitisation without some, if not all the weaknesses, that led to the sub-prime crisis". While still at a stage of relative infancy, she noted, "the inherent features of Islamic securitisation can potentially position this product as the catalyst for the revival of the securitisation market" at a global level.

Earlier, in his opening remarks, Mr. Jaseem Ahmed, Secretary-General of the IFSB, welcomed the participants in the 6th Legal Seminar and updated them on the work programme and publications of the IFSB on the Islamic capital markets, most recent of which has been the issuance of a new joint publication with IOSCO in September 2013 namely "Disclosure Requirements for Islamic Capital Market Products". Highlighting the impact of global regulatory developments related to capital adequacy and liquidity management on the dynamics of Sukuk market, he updated the audience on the recent standards issued by the IFSB as well as the Board's ongoing work.

In the first session of the Seminar, speakers shared their insights on the legal challenges faced by asset securitisation and Sukuk structuring. They explained how underlying Shari`ah principles give rise to various challenges to the compatibility of securitisation with the existing legal systems. Speakers also outlined some emerging trends and experiences with respect to issues such as the role of trustee in Sukuk structuring, restructuring, time to market, guarantee and taxation. Speakers in this session called for legal reforms especially in the area of asset securitisation to be more facilitative and adoptive to Shari`ah requirements.

The second session, themed "Growth of Islamic Hedging Instruments: Legal Issues and Challenges" focused on the need for establishing international standards governing transactions of Islamic hedging instruments. The speakers emphasised that such standardisation would reduce the legal uncertainty that the industry is facing and grant users with more transparency and legal clarity on the instruments. In addition, reduction of risk associated with these instruments will be achieved through use of best practices in over-the-counter contracts, which will also resolve the time-to-market issue. Islamic hedging instruments need more research that could help the introduction of innovative and creative instruments that are legally sound, Shari`ah compliant, marketable, and less risky.

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This enriching Seminar came to an end in the third session where a panel of speakers discussed the Shari`ah governance structure and the role of Shari`ah supervisory boards in assisting the innovation and development of these evolving markets. The panelists underlined the importance this additional level of governance can play to balance out the profit motive that drives securitisation and hedging transactions. The speakers also highlighted various examples on the operations of Shari`ah supervisory boards at the central or institutional level that could help to strengthen the governance process for issuance of Sukuk. They also noted that Shari`ah governance systems should ensure the qualification of Shari`ah board members, the underlying reasoning of the Fatwas and the availability of the reviewed documents to the public to strengthen the confidence in their respective institutions and the system as a whole. The panelists called for an active dialogue to take place between regulators, policy makers, Shari`ah scholars, and market players with the assistance of international organisations contribute towards greater standardisation and harmonisation without jeopardising the innovation and creativity needed for the industry to grow.

For more information of these events, please visit www.ifsb.org.

About the Islamic Financial Services Board (IFSB)
The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. Towards this end, the IFSB works closely with relevant international, regional and national organisations, research/educational institutions and market players.

The IFSB comprises 184 members in 45 jurisdictions, representing regulatory and supervisory authorities, international inter-governmental organisations and market players, professional firms and industry associations.

For more information about the IFSB, please visit www.ifsb.org.

© Press Release 2014