Tawarruq - Overview

Transcription

1. Tawarruq 1 of 32 PART A OVERVIEW 1 . Introduction 1.1 Compliance with Shariah requirement is a prerequisite in ensuring the legitimacy of Islamic financial products and services. In meeting this expectation, it is essential for an Islamic financial institution (IFI) to establish the necessary operational framework and infrastructure to ensure that the conduct of Islamic financial transactions is consistent with Shariah. 1.2 The Shariah contract-based regulatory policy is intended to ensure end-toend compliance with Shariah and therefore, enhance the integrity and sustainability of the IFI. 1.3 The policy document contains two distinctive parts, namely the Shariah requirements and the operational requirements. The former highlights the salient features and essential conditions of the tawarruq as specific Shariah arrangement. The latter outlines the operational requirements which consist of core principles of good governance and oversight, proper product structuring, effective risk management, sound financial disclosure and fair business and market conduct. These operational requirements are aimed at complementing and promoting sound application of the Shariah principles. 1.4 A tawarruq consists of two sale and purchase contracts. The first involves the sale of an asset by a seller to a purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis. 1.5 This policy document aims to: (a) set out the Shariah rulings associated with tawarruq; (b) set out key operational requirements with regards to the implementation of tawarruq; and (c) promote end-to-end compliance with Shariah requirements which include adherence to sound Islamic banking practices and safeguarding customers’ interest. 1.6 Part B sets out mandatory Shariah requirements to ensure the validity of the tawarruq as well as permissible optional practices. 1.7 Part C provides operational requirements for a tawarruq on governance and oversight, structuring, risk management, financial disclosure, business and market conduct. It describes 5 key principles for sound management and operationalisation of tawarruq as follows: (a) Principle 1: The IFI shall establish a comprehensive governance and oversight framework to ensure that a tawarruq is conducted based on sound practices and complies with Shariah; Issued on: 28 December 2018
2. Tawarruq (b) (c) (d) (e) 2 of 32 Principle 2: The IFI shall ensure that the structuring and implementation of a tawarruq is supported by comprehensive policies and procedures and processes, adequate infrastructure and robust documentation; Principle 3: The IFI shall implement a sound and integrated risk management system to effectively manage risks in line with the IFI’s risk appetite throughout the life cycle of the tawarruq; Principle 4: The IFI shall undertake a tawarruq in a fair and transparent manner in line with Shariah to protect stakeholder’s interest; and Principle 5: The IFI shall provide adequate disclosure and transparency to facilitate stakeholders’ understanding and assessment of a tawarruq. 2. Applicability 2.1 Subject to paragraph 2.2, this policy document is applicable to all IFIs as defined in paragraph 5.3. 2.2 A licensed takaful operator is only required to comply with Part B of this policy document. 3. Legal provisions 3.1 The requirements in this policy document are specified pursuant to: (a) sections 29, 57(1), 135(1) and 155 of the Islamic Financial Services Act 2013 (IFSA); and (b) section 41(1) and constitutes a direction pursuant to section 129(3) of the Development Financial Institutions Act 2002 (DFIA). 3.2 The guidance in this policy document is issued pursuant to section 277 of the IFSA and section 126 of the DFIA. 4. Effective date 4.1 This policy document comes into effect on 28 December 2018. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the Financial Services Act 2013 (FSA), IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. Issued on: 28 December 2018
3. Tawarruq 5 .2 3 of 32 For the purpose of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretive, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; and “G” 5.3 denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Islamic financial institution” or “IFI” refers to – (a) (b) (c) (d) a licensed Islamic bank; a licensed takaful operator; a licensed bank and licensed investment bank approved under section 15(1)(a) of the FSA to carry on Islamic banking business; and a prescribed institution under the DFIA approved under section 33B(1) of the DFIA to carry on Islamic banking business or Islamic financial business. 5.4 A glossary of terms used in this policy document is set out in Appendix 2. 6. Related Shariah rulings and policy documents 6.1 This policy document must be read together with other relevant legal instruments, policy documents that have been issued by the Bank, in particular: (i) any Shariah Advisory Council (SAC) rulings published by the Bank1; (ii) Murabahah (BNM/RH/STD 028-4); (iii) Rahn (BNM/RH/PD 028-79); (iv) Shariah Governance Framework for Islamic Financial Institutions (BNM/RH/GL 012-3); (v) Corporate Governance (BNM/RH/PD 029-9); (vi) Guidelines on Corporate Governance for Development Financial Institutions (BNM/RH/GL 005-14); (vii) Risk Governance (BNM/RH/GL 013-5); (viii) Capital Adequacy Framework for Islamic Bank – Disclosure Requirements (Pillar 3) (BNM/RH/GL 007-18); (ix) Capital Framework for Development Financial Institutions (BNM/RH/GL 005-7); (x) Guidelines on Product Transparency and Disclosure (BNM/RH/GL 000-3); 1 Including Shariah resolutions in Islamic Finance, standards, circulars or any directive pertaining to Shariah matter issued by the Bank. Issued on: 28 December 2018
4. Tawarruq (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) 4 of 32 Financial Reporting for Islamic Banking Institutions (BNM/RH/PD 028-71); Guidelines on Financial Reporting for Development Financial Institutions (BNM/RH/GL 005-16); Guidelines on Ibra’ (Rebate) for Sale-based Financing (BNM/RH/GL 012-5); Guidelines on Late Payment Charges for Islamic Financial Institutions (BNM/RH/GL 012-6); Responsible Financing (BNM/RH/GL 000-5); Personal Financing (BNM/RH/GL 008-19); and Introduction of New Products (BNM/RH/STD 028-5). 7. Policy document superseded 7.1 This policy document supersedes the Tawarruq policy document issued on 17 November 2015. Remainder of this page is intentionally left blank Issued on: 28 December 2018