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IFSB Seminar discussed innovation in Sukuk securitisation, Islamic hedging instruments.

The Islamic Financial Services Board's (IFSB) sixth IFSB Seminar on Legal Issues in the Islamic Financial Services Industry (IFSI), themed, Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges was held on 25 March 2014 in Bandar Seri Begawan, Brunei Darussalam. The Seminar was organised in conjunction with the IFSB Annual Meetings and Side Events 2014, and hosted by the Autoriti Monetari Brunei Darussalam (AMBD).

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'.

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, Jaseem Ahmed, Secretary-General of the IFSB, 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'ahrequirements.

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.

In the third session 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 panellists 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'ahs upervisory 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 panellists 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.

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Publication:CPI Financial
Geographic Code:9BRUN
Date:Apr 10, 2014
Words:756
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