As the global Islamic financial services industry gains momentum both in terms of confidence and recovery in a global economy that is still coming to terms with the twin effects of the credit crunch and financial crisis, the 7th Islamic Financial Services Board (IFSB) Annual Summit due to be held on 4th-5th May 2010 at the Ritz-Carlton Hotel in Manama, Bahrain under the patronage of the Central Bank of Bahrain, is attracting wide spread interest from regulators and market participants from various parts of the world, including countries that are attending the Summit for the very first time.
The growing interest in Islamic finance from new markets and the industry’s ability in general to absorb the shocks of the financial crisis better than the conventional sector has prompted several countries and analysts to take a further or a new look at Islamic finance.
In this respect, this year’s Summit theme “Global Financial Architecture: Challenges for Islamic Finance” also provides an alternative platform and perhaps strategies to come up with new ways of pre-empting the very issues that have caused a near collapse of the global financial system.
The Summit, which will be addressed by Dr Sabir Mohamed Hassan, Governor of the Central Bank of Sudan and Chairman of the IFSB Council, has already attracted the confirmed participation of some of the most influential regulators in global Islamic finance, and the participation of regulators from new markets in the European Union (EU) and Africa. Mr Yves Mersch, Governor Banque Centrale du Luxembourg, Stefan Ingves, Governor, Central Bank of Sweden, Rundheersing Bheenick, Governor of Bank of Mauritius and Sanusi Lamido, Governor of Central Bank of Nigeria will all be attending the IFSB Summit for the first time. Luxembourg was also admitted as an Associate Member of the IFSB in November 2009 – the first EU country to become a member of the IFSB to date.
Several international organisations including BIS, IOSCO, the World Bank, and market players from various industry segments, including financial institutions, advisory firms, international credit rating agencies and law firms have also confirmed their participation.
The main issues of this year’s Summit are also reflected in the five session topics which cover:
i) The Changing Landscape of Financial Regulation: Implications for Islamic Finance
ii) Macro-Prudential Surveillance Issues for Islamic Finance
iii) New Architecture for Liquidity Management for Islamic Financial Instruments
iv) Balanced growth of Islamic finance - the Sectoral Composition of the Islamic Financial Services Industry as a Contributor to Growth with Stability
v) New Islamic Financial Architecture: Challenges Ahead.
The lessons learnt from the shortcomings in the existing regulations and policies guiding the international financial system have led to significant changes being initiated in the landscape of global financial regulation within the past year. In this respect, the first session will consider the implications for the regulation and supervision of Islamic finance; whether the existing financial regulation structure and prudential standards for Islamic finance is equipped to address the industry’s future challenges; and identify the priority areas of prudential regulation of Islamic finance that need attention.
There is an apparent void in Sharī`ah-compliant money market instruments for liquidity management, and in the development of Islamic money markets across the globe. As such, the second session will highlight the existing framework of liquidity management for Islamic financial instruments and the characteristics of a new architecture for the liquidity management; and identify the obstacles to past attempts to develop Islamic money markets and to facilitate liquidity management by central banks and other financial institutions. It will also suggest ways how international and regional cooperation can contribute to facilitating effective liquidity management by IIFS with the support of central banks.
Monitoring systemic risks in the financial industry is of immense importance so as to give early warnings of financial instability. This is especially so, given that financial crises can have huge costs. The third session, in fact, will look into the pertinent issues and areas of concern for macro-prudential surveillance in Islamic finance and identify the structures and risks that have to be examined in the Islamic financial services industry and the kind of data needed to conduct macro-prudential analysis and surveillance.
The recent global financial crisis has demonstrated that the composition of the different sectors within the financial industry – particularly banking and securities markets and their interaction – plays a role in its balanced development and stability. This fourth session indeed will discuss whether the current and evolving composition of the Islamic financial services industry is optimal for its sound development with stability; what role should national regulators and market players have in guiding the balanced development of the banking, capital market and Tākaful sectors; and what are the regulatory challenges in promoting this balanced development.
The relative roles of international financial institutions, standard- setting bodies, and global forums, which constitute the global international financial architecture and infrastructure, are still undergoing transformation in response to the global financial crisis. In parallel, the institutional architecture of financial regulations at the national level must respond to changes in both the industry and the global architecture. The final session of the Summit while looking ahead to some of the challenges facing the industry, will consider to what extent the roles of international organisations and standard- setting bodies have changed in the supervision of the global financial system and whether this implies the need for a new set of international infrastructure arrangements for Islamic finance in order to provide an effective contribution to global financial stability. It will conclude by exploring some of the challenges for the existing International Islamic
Infrastructure institutions such as the IFSB etc., and by ascertaining whether there is a need for changes in the various national institutional architectures for Islamic finance in response to global developments.
The main proceedings will be preceded by two traditional pre-Summit events – Public Hearings on IFSB Exposure Drafts (EDs) and IFSB Country Showcases, both of which have proved popular and informative in the past.
This year a public hearing will be held on an Exposure Draft on ‘Solvency Requirements for Takaful Undertakings’. The IFSB has issued two further EDs for public consultation. They include ‘Guidance Note In Connection With the Risk Management and Capital Adequacy Standards: Commodity Murabahah Transactions (CMT)’ and ‘Guidance Note on the Practice of Smoothing the Profits Payout to Investment Account Holders’.
There will also be a number of country showcases organized on 3rd May 2010. The Malaysia International Islamic Financial Centre (MIFC), for instance, is organizing a Malaysia Islamic Finance Showcase Dinner on the evening of the 3rd May 2010 which will be addressed by Tun Mahathir Mohamed, the former Prime Minister of Malaysia and the architect of the contemporary Islamic financial industry in Malaysia. Other countries have also expressed an interest in organizing showcases.
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