ISLAMABAD: All Islamic financial institutions including entities offering Islamic financial services would be required to comply with all relevant standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

In this regard, the Securities and Exchange Commission of Pakistan (SECP) has issued a concept note on Friday.

According to the SECP, the Commission, in line with its scope, may inform the stakeholders periodically upon receipt of intimation from AAOIFI about the new issuance of relevant standards and/or exposure drafts.

SECP releases first Islamic Finance Bulletin for 2022-23

To achieve such standardization, SECP presently has deployed a flexible and market-oriented strategy for adoption/adaptation of AAOIFI standards. The policy is highly sensitized to industry feedback and emergent constraints of domestic market.

The Shariah Standards issued by AAOIFI, and Islamic Financial Accounting Standards issued by ICAP that have already been notified by the Commission shall remain binding unless any required changes to that effect are approved by the Commission.

In case, the Shariah Standards issued by AAOIFI overlap with such Islamic Financial Accounting Standards issued by ICAP that have been notified by the Commission, compliance with IFAS shall be mandatory and shall take precedence.

Over the period of experimentation and regulatory interventions around the globe, it has been observed that the existing strategy for adoption deployed to bring standardization in IFIs is less effective and marginally efficient. The existing strategy lacks comprehensiveness as it largely relies on adoption of Shariah standards only.

It further ignores the integration between Shariah, governance and accounting standards which is necessary for the credible functioning of IFIs. Lastly, existing strategy offers a very passive and less interactive process of adoption regarding industry feedback and doesn’t effectively contribute to the preparedness of the industry for standardization to its true potential, the SECP stated.

Presently focus of standardization is limited to the adoption of the AAOIFI’s Shariah standards and Islamic Financial Accounting Standards developed by ICAP and that too on need basis.

The AAOIFI has, so far, promulgated a total of 119 standards and technical pronouncements in the area of Shariah, accounting, auditing, governance, ethics for IFIs and Islamic finance transactions and structures, including Waqf and other ancillary institutions, with an aim to achieve progressive degree of harmonization in the international Islamic finance practices.

Copyright Business Recorder, 2024