Wakalah - Operational Requirements

Transcription

1. Wakalah PART C 23 . 12 of 20 OPERATIONAL REQUIREMENTS Governance and oversight G 23.1 The requirements under this part complement the broad governance and oversight expectations specified under the relevant policy documents on corporate governance issued by the Bank. While broad governance and oversight principles are applicable, specific requirements are needed to manage risks and unique nature of wakalah. S 23.2 An IFI must have sufficient understanding of its risk profile and ensure the availability of personnel with the appropriate knowledge and skills to offer wakalah. Board of directors S 23.3 The Board of Directors of an IFI (the Board) must establish sound governance structure to facilitate effective oversight on the management and implementation of wakalah. The adequacy of the governance structure must be commensurate with the nature, complexity and risk profile of wakalah. S 23.4 2 The Board has overall responsibility for corporate governance, Shariah governance and Shariah compliance of an IFI. As such, the Board must – (a) approve the business and risk strategies of the IFI with regard to the application of wakalah; (b) approve and oversee the implementation of policies and procedures governing the application of wakalah, which must include the following aspects: (i) purpose, roles, duties and responsibilities of the IFI; (ii) applicable legal documentations2; (iii) methodologies, assessment criteria and approving authorities for the appointment of agent; (iv) parameter on any fees and charges; (v) mechanism for monitoring and periodic reporting on the performance of the IFI in discharging its duties; (vi) risk management; and (vii) information disclosure; (c) ensure appropriate internal controls, systems and infrastructure are in place to implement wakalah in accordance with Shariah requirements; (d) ensure that sufficient resources are in place and that the IFI has adequate and qualified senior management with sufficient knowledge and competency on the concept, application and risks associated with the wakalah arrangement; and (e) ensure independent reviews are conducted regularly to assess compliance with the policy documents issued by the Bank and internal policies established by the IFI. Refers to contracts, agreements, master agreement or other generally acceptable documents in trade and financial transactions. Issued on: 24 June 2016
2. Wakalah 13 of 20 Shariah committee S 23 .5 The Shariah Committee has the responsibility to advise an IFI in ensuring its business, affairs and activities comply with Shariah requirements including activities involving a wakalah arrangement. As such, the Shariah Committee must – (a) endorse the application of Shariah requirements in the relevant policies and procedures governing the wakalah; (b) review the terms and conditions stipulated in the legal documentation and other documentation such as in the promotional material, product manual or other publications, and endorse that the terms and conditions are in compliance with Shariah; (c) advise and provide clarification on relevant Shariah rulings, decisions or guidelines on Shariah matters issued by the Bank, and if relevant, any other authorities; and (d) assess the work carried out by Shariah review and Shariah audit and endorse any rectification measures to ensure wakalah complies with Shariah requirements. Senior management S 23.6 The senior management has the responsibility to ensure that the business and operations of an IFI complies with Shariah requirements. As such, the senior management must – (a) develop and implement internal control and risk management policies and procedures in line with the business strategy and risk appetite as approved by the Board; (b) establish and implement policies, procedures and processes with regard to the development of product and services and where applicable, the basis for determining fees and charges, assessment of agent’s or subagent’s capabilities and competencies to effectively execute the specific tasks, proper management and execution of the wakalah; (c) develop legal documentations with respect to wakalah, which clearly outlines the duties and responsibilities of the IFI as agent or principal; (d) implement relevant internal systems and infrastructure and adequate mechanisms to identify, measure, control and monitor risk associated with wakalah; (e) ensure key accountabilities has the appropriate skills to perform the roles and responsibilities under wakalah effectively; (f) clarify the IFI’s fiduciary responsibilities as agent and the manner to discharge the responsibilities effectively; (g) develop and undertake regular reviews and monitoring of the IFI’s performance under wakalah arrangement, including compliance with Shariah requirements; (h) institute necessary processes and procedures to ensure the terms as specified under wakalah legal documentations and Shariah requirements are executed effectively; and (i) ensure timely disclosure of relevant information to the Board and the Shariah Committee. Issued on: 24 June 2016
3. Wakalah 24 . 14 of 20 Structuring Purpose S 24.1 An IFI must clearly specify – (a) the purpose of the financial product and services that apply wakalah; and (b) the subject matter of the wakalah. S G 24.2 An IFI must also ensure the overall structure and outcome of the product and services do not contravene with Shariah requirements as provided in this policy document. Contracting parties 24.3 Wakalah may be applicable for the purpose of asset acquisition or executing an investment. S 24.4 The roles and responsibilities and the rights and obligations of contracting parties including the employment of sub-agent in wakalah, must be clearly described in the terms of the financial product and services. S 24.5 If the wakalah is undertaken in combination or has interlinkages with other contract, the roles and responsibilities and the rights and obligations of contracting parties in these contracts must also be clearly specified and distinguish in the terms of the financial product and services. S Offer and acceptance 24.6 In entering into a wakalah contract, an IFI must ensure that an offer and acceptance is clearly evidenced by appropriate documentation or record 3. Fees and charges S 24.7 An IFI must clearly disclose any applicable fees and charges, requirement for delivery of asset and settlement arrangement in the terms of the wakalah contract, if applicable. S IFI as agent 24.8 Where an IFI undertakes the role of agent, the IFI must ensure that – (a) the mandated roles and responsibilities under wakalah contract is in line with its business and risk appetite and do not contravene with Shariah requirements; (b) the appointment of agent is executed in the manner as approved by Shariah; (c) it has the necessary capacity and capability to perform the roles and responsibilities as specified by the principal and manage the risks associated with the wakalah; (d) prior consent of principal is obtained for the appointment if sub-agent is employed to perform specific roles and responsibilities under the wakalah; and 3 This is to avoid legal risk as well as to safeguard the interest of the customer. Issued on: 24 June 2016
4. Wakalah (e) S 15 of 20 proper documentations are maintained as evidence to the execution of specified duties or mandate under wakalah. 24.9 An IFI must disclose to all principals if it undertakes the role as agent for more than one principal in a financial product or services and ensure the mandated roles under each wakalah are executed independently. IFI as principal S 24.10 An IFI that undertakes the role of principal must clearly specify the purpose, roles and responsibilities of agent under the wakalah. G 24.11 Where an IFI acts as principal in wakalah for the purpose of investment, the IFI may specify – (a) investment portfolio or assets to be invested by the agent; (b) the skills or expertise required for an agent to perform specific tasks; and (c) compensation terms or remuneration of the agent (if any) and the expected return on investment. S 24.12 Where an IFI acts as a principal for the purpose of asset sales and purchase transactions, the IFI must – (a) clearly specify the subject matter of the transaction or types of assets and roles and responsibilities of the agent; (b) ensure there is an established process in place for the proper appointment of the agent prior to the agent conducting specified roles and duties; (c) where applicable, set out the requirement on delivery, documentary evidence of asset’s ownership and settlement terms; and (d) specify the execution process or outline any ratification process of agent’s conduct, if applicable. S 24.13 Subject to fulfilment of conditions stipulated in paragraph 16.1, an IFI can ratify and confirm that the customer has acted as the IFI’s agent under the wakalah agreement to secure the IFI’s ownership in the asset purchased. Documentation S 24.14 An IFI must develop comprehensive and legally enforceable documentation that clearly stipulate the terms and conditions in the wakalah arrangement which are in compliance with Shariah and regulatory requirements. S 24.15 In line with paragraph 24.14, legal documentation pertaining to wakalah arrangement must include the following terms: (a) description of the subject matter; (b) rights, duties or responsibilities of contracting parties including rights where one party elects to terminate or dissolve the wakalah; (c) where applicable, the agreed wakalah fee or an agreed methodology or benchmark practices to compute the fee; (d) circumstances which trigger the dissolution of wakalah; (e) mechanism to determine the compensation payable to contracting party that suffers losses following the event of default or breach of contractual Issued on: 24 June 2016
5. Wakalah (f) (g) 16 of 20 terms; treatment or specification of cost involved in performing the wakalah or the duration or tenure or maturity period of wakalah; and in the event that there is – (i) an appointment of sub-agent, record of principal’s consent; (ii) unauthorized agency, the ratification process of the unauthorized agent; and (iii) dual agency, the contracting parties must ensure the essential criteria or specification of the authorized task must be agreed and the documentation must state clearly the roles of the contracting parties in each of the transactions. S 24.16 An IFI shall adequately clarify or translate the use of Arabic terminology in the legal documentations to facilitate clear understanding of the contracting parties. 25. Risk management S 25.1 An IFI must institute and implement sound integrated risk management system to effectively manage risks arising from its role as agent or principal in wakalah. S 25.2 An IFI must establish risk management policies and procedures to identify, measure, monitor and control risks associated with wakalah to support the IFI in discharging its responsibilities effectively. S 25.3 The risk management policies and procedures of an IFI must include the following: (a) process to ascertain that the application of wakalah is consistent with the business and risk strategy of the IFI and Shariah requirement; (b) methodologies to identify risks inherent with the IFI’s roles and responsibilities under the wakalah; (c) assessment on the adequacy of the IFI’s capabilities, capacities and have in place necessary system to support effective execution of its contractual obligations; (d) where applicable, establish the mechanism to review the suitability of the procedures for the appointment of agent or sub-agent and monitoring their performance; (e) establish mechanism to analyse and methodologies to measure potential financial losses arising from identified risk events associated with the IFI’s roles and responsibilities under the wakalah; (f) set out risks exposure limit to mitigate potential excessive risk taking, if applicable; (g) where applicable, outline risks mitigation measures or instruments, such as takaful cover, acceptance of collateral, employment of guarantee or provision for exit mechanism in the wakalah; (h) establish mechanism to monitor the IFI’s performance in satisfying its contractual obligations, sufficiency of the collateral value, compliance with Shariah requirements and internal policies; and (i) scope and frequency of risks reporting to the Board and where applicable, observation on Shariah non-compliance risks to the Shariah Committee. Issued on: 24 June 2016
6. Wakalah 26 . S 26.1 27. S 27.1 17 of 20 Financial disclosures An IFI must maintain proper accounting and other records for the reporting of financial performance in a timely manner to ensure that financial statements are prepared in a true and fair manner. Business and market conduct An IFI shall ensure that wakalah arrangement is conducted in a fair and transparent manner and give due regard to the interests of all contracting parties. Fair dealings S 27.2 An IFI must ensure that its internal policies and procedures on business market conduct for wakalah arrangements reflects transparency and dealing practices to all contracting parties including – (a) the obligation to disclose the roles and responsibilities in a timely accurate manner and is not misleading; (b) the applicable fees and charges; and (c) reasonable care is taken to ensure suitability of advice recommendations made by the IFI. S 27.3 and fair and and Where an IFI acts as an agent, the IFI – (a) must inform the principal on the completion of the wakalah contract; and (b) ensure that terms and condition of the wakalah contract preserves the rights and interest of the principal, including any amendments made during renegotiation or extension of contract. Disclosure of information S 27.4 At pre-contractual stage, an IFI must provide adequate and relevant information to potential contracting parties to facilitate informed decisionmaking. Issued on: 24 June 2016