SBP’s instructions on management of SNCR of the IBIs

KARACHI: In order to enhance the stability and soundness of Islamic banking, the State Bank of Pakistan (SBP) has issued exclusive instructions on Shariah Non-Compliance Risk (SNCR) management.
In a statement on Monday, the SBP said that the foundation of Islamic banking lies in compliance with Shariah rules and principles in all its business activities and operations. The SNCR is a unique risk faced by Islamic Banking Institutions (IBIs) and must be managed proactively.
It said the increasing size of the industry in terms of assets and deposits, diversified operations, products, and services make focused management of SNCR a necessity. In addition, the adoption of uniform practices will help in maintaining consistency over time and across IBIs.
To improve SNCR management, instructions issued by SBP require the Board of Directors (BoD) and senior management of IBIs to approve and ensure implementation of SNCR as a part of the overall risk management framework in line with the size and complexity of their business, said the central bank.
The SNCR management framework will be developed using SBP’s instructions on Shariah principles and decisions in conjunction with rulings and fatawa of the Shariah Board of the IBI as key reference points. These will allow for the identification of risks and controls in different products, services, and business activities. As per SBP’s instructions, IBIs should take the necessary steps to ensure that relevant members of BoD and senior management possess the requisite knowledge and understanding of the risk management of SNCR, said the statement.
The SBP’s instructions require IBIs to have an appropriate reporting mechanism, including frequency and thresholds for reporting of SNCR events to the BoD or its sub-committee. The IBIs will also be required to maintain proper record of Shariah’s non-compliant events or transactions and furnish to SBP, on a quarterly basis, the details of actual losses incurred, said the central bank.
It said that issuance of current instructions coupled with the existing comprehensive Shariah governance framework will help achieve targets laid down in the third strategic plan for Islamic banking recently issued by SBP.
Meanwhile, the State Bank of Pakistan (SBP) has proposed a framework for facilitating Pakistani exporters to sell their products through international digital marketplaces.
In a statement issued on Monday, the central bank said it has proposed changes in its regulatory instructions for exporting goods from Pakistan with the agenda of modernising foreign exchange regulations. It added that the changes are aimed at promoting ease of doing business by simplifying existing instructions.
“The key amendments proposed include a framework for facilitating Pakistani exporters to sell their products through international digital marketplaces including Amazon, e-Bay and Ali Baba under business to business to consumer (B2B2C) e-commerce model,” it said.
“Amendments required in export regulations to implement Pakistan Single Window Project, which would eliminate electronic form-e requirement, are also part of revised draft,” said the central bank.
“Regulatory approvals required from SBP have been proposed to be delegated to banks to facilitate the business community. The proposed changes are a part of SBP’s broader agenda to revise existing foreign exchange regulations to align them with the changing market dynamics, business needs and global trade practices,” the central bank said.
Likewise, in some other areas, regulatory approvals required from SBP have been proposed to be delegated to banks to facilitate the business community, the statement said. The proposed changes are a part of SBP’s broader agenda to revise the existing foreign exchange regulations to align them with the changing market dynamics, business needs and global trade practices.
According to the statement, as a part of this process, 11 chapters (out of 22) of the Foreign Exchange Manual have already been revised through a consultative process with the banking industry and the business community. The latest amendments in foreign exchange instructions pertaining to exports are provided in Chapter 12 of the Foreign Exchange Manual.
Inviting feedback and comments from the stakeholders, the SBP said that proposed draft regulations have been placed at its website. Last month, e-commerce giant Amazon added Pakistan to its sellers’ list. In a tweet announcing the development, Adviser to the Prime Minister on Commerce, Textile and Investment Abdul Razak Dawood said: “It is a big accomplishment for our e-commerce and will open up vast opportunities for a new breed of young men and women entrepreneurs. We congratulate everyone involved.” – TLTP