Aligned with its role as advocate of the Islamic Financial Services Industry (IFSI), the General Council for Islamic Banks and Financial Institutions (CIBAFI), the global umbrella of Islamic financial institutions, announced that it has submitted its comments on 27 September 2017 to the Basel Committee on Banking Supervision (BCBS) on the Consultative Document on “Simplified alternative to the standardised approach to market risk capital requirements”.
The Consultative Document has been issued on 29 June 2017 and was open for public consultation until 27 September 2017.
CIBAFI thanked the BCBS for giving the opportunity to the IFSI to comment on the Consultative Document before the proposed simplified alternative approach is adopted. CIBAFI has provided collective feedback of its member banks form over 32 jurisdictions, comprising the following key points.
Islamic banks are, for the most part, relatively small by global standards and are mainly based in emerging markets. For that reason alone they would be likely to take very little market risk. The fact that they are Islamic, however, means that for Shari’ah compliance reasons, they will be very restricted in their ability to take short positions or to use derivatives. This is likely to make their market positions simpler still, and those positions are likely to remain simple in the longer term.
Moreover, the design of the reduced sensitivities-based method (R-SbM) is significantly different from the design of the already widely-used Basel II standardised approach. CIBAFI is therefore concerned that the implementation of this method may pose substantial implementation challenges and costs for Islamic banks that already use Basel II approach. In addition the benefits of implementation are uncertain and yet to be clarified.
Therefore, the view of CIBAFI is to prefer a recalibrated Basel II approach, but of course subject to the details of the way this proposal is developed and its implications for capital.
In its submission to the BCBS, CIBAFI expressed its appreciation of the work that the BCBS does to maintain sound regulatory practises and highlighted the need for the BCBS to align its work recognising the Islamic financial industry’s considerations.
In addition to policy and regulatory advocacy, CIBAFI continues to support the Islamic Financial Services Industry through various activities and initiatives. These include providing industry stakeholders with a platform to discuss emerging issues, representing the industry at major global financial events, and sharing knowledge through specialised publications and comprehensive training programmes.
Originally published on www.cpifinancial.net