REGULATIONS - The IFSB issues two Exposure Drafts for public consultation

Kuala Lumpur, November 4, 2010 - In its 22nd meeting held today in Kuala Lumpur, Malaysia, the Technical Committee of the Islamic Financial Services Board (IFSB) approved the issuance of the following two Exposure Drafts (EDs):

1. Guidance Note In Connection with the IFSB Capital Adequacy Standard: The Determination of Alpha in the Capital Adequacy Ratio
2. Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and ReTakāful Undertakings

Guidance Note In Connection with the IFSB Capital Adequacy Standard: The Determination of Alpha in the Capital Adequacy Ratio

This Guidance Note complements the IFSB Standard on Capital Adequacy for Institutions offering Islamic Financial Services (IIFS) (IFSB-2), which was issued in December 2005. IFSB-2 proposes two methods to calculate capital adequacy ratios of IIFS. This Guidance Note aims to:

1. provide a methodology to estimate the value of “alpha” to be used in the supervisory discretion formula in calculating capital adequacy ratio of IIFS; and
2. demonstrate how to measure the displaced commercial risk, that is the additional risk that IIFS shareholders may assume in order to cushion the returns payable to investment account holders against variations in asset returns.

Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and ReTakāful Undertakings

The objective of this Guidance Note is to facilitate the emergence of generally accepted criteria for the recognition by national supervisory authorities and the wider financial community of credit ratings on Takāful and ReTakāful undertakings. It aims to:

1. facilitate greater use of credit ratings on Takāful and ReTakāful undertakings;
2. provide supervisory authorities with minimum standards and criteria for their recognition of ECAIs;
3. foster convergence among authorities supervising Takāful and ReTakāful undertakings;
4. facilitate discussion on the appropriate role, if any, which ratings by ECAIs on Takāful and ReTakāful undertakings might play as part of a wider supervisory process; and
5. promote further discussion about ECAI methodologies and enhance the transparency of those methodologies.

The public consultation period which begins 4 November 2010 is part of the due process for the preparation of the IFSB Guidance Notes. The IFSB Secretariat invites all interested parties, including the IFSB members, to comment send their comments on the EDs to the IFSB Secretariat (ifsb_sec@ifsb.org) latest by 14 January 2011.

The EDs will be available for download from the IFSB website at www.ifsb.org.

Source : http://www.ifsb.org/preess_full.php?id=151&submit=more - Nov 4, 2010