The Securities and Exchange Commission of Pakistan (SECP) has issued a notification on draft Sharia Governance Regulations 2018.
These regulations are for governance of Sharia-compliant companies and entities, including the Sharia-compliant securities and Islamic financial institutions.
For the first time ever, a holistic Shariah governance framework has been introduced by the apex regulator for the corporate sector and capital markets.
Zafar Abdullah, the SECP chairman, termed it a quantum leap forward in cementing Islamic financial services, Shariah-compliant businesses, and instruments in Pakistan.
The concept of a Sharia-compliant company and security was introduced through provisions incorporated in the Companies Act 2017, empowering SECP to implement the scheme of certification of Sharia-compliant companies and securities.
The provision enables SECP to regulate almost every aspect of Shariah-compliant products, services, and businesses.
The exponential growth of Islamic finance made it imperative to effectively regulate the businesses running their activities as per Shariah principles.
SECP regulates highly important segments of the Islamic financial services industry, including modarabas, takaful, Islamic NBFIs, Islamic mutual funds, pension funds, real estate investment trusts, Sharia-compliant companies, and securities.
In order to bring harmonization, standardization, and transparency in the practices of these Shariah-compliant businesses, SECP’s Islamic Finance Department (IFD) reviewed Shariah governance frameworks and Islamic finance provisions of several international jurisdictions.
Keeping the domestic Islamic financial and socio-economic environs in mind, IFD drafted these regulations, covering areas such as certification of Shariah-compliant companies and securities, Shariah screening criteria, functions and responsibilities of Shariah adviser, external and internal Shariah audit, Shariah compliance, disclosure requirements, systems and controls, and accounting, auditing and governance standards.
The regulations were needed to facilitate the growth of Shariah-compliant entities in line with SECP’s mandate of providing a Shariah governance framework and bringing SECP on par with international regulators.
These regulations will lead to the development of long-term, sustainable Islamic financial market, corporate sector and capital markets in Pakistan.
Considering the need for a consistent and updated Shariah governance framework, IFD conducted extensive consultation sessions with Shariah advisers, SBP, PSX, ICAP, takaful companies, modaraba and NBFI Association.
The Shariah governance framework was also presented to the Implementation Committee’s subcommittee on Islamic capital market and to the SECP’s Shariah Advisory Board (SAB). The members of committee and SAB expressed their satisfaction over the contents and appreciated IFD’s efforts.
The regulations are now open to public consultation and stakeholders have an opportunity to share their comments and suggestions within two weeks.