The SECP directs Islamic financial institutions to establish Shariah compliance units

The Securities and Exchange Commission of Pakistan (SECP) has directed all Islamic financial institutions to establish Shariah compliance units as well as hire internal and external auditors.

According to the SECP’s directive to Islamic financial institutions on Friday, every Islamic financial institution is encouraged to establish a Shariah compliance unit headed by a Shariah compliance officer with appropriate qualifications, training and experience in the field of Islamic finance.

The Sharia Compliance Unit may operate under the overall direction and supervision of the Sharia Supervisory Board, reporting to the Head of Compliance or Internal Audit, as appropriate.

The Shariah Compliance Officer may coordinate with the Shariah Advisor, Shariah Advisory Board and management and may be assigned responsibility for reviewing all product proposals and related agreements, contracts, manuals and process flow before presenting them to the Shariah supervisory board for approval ensures that the operations of Islamic financial institutions are in accordance with the principles and rules of Shariah and periodically submit a Shariah compliance report to the management on the overall Shariah compliance environment.

The SECP further directed that every Islamic financial institution is encouraged to strengthen its internal audit department, either by appointing an internal Shariah audit resource who has relevant qualifications or expertise in the field of Islamic finance or by training at least one of its employees in the internal audit department for internal Shariah audit purposes from a reputable educational institute.

The scope and methodology of the internal Shariah audit may be reviewed and approved by the board or audit committee of the Islamic financial institution. The internal Shariah audit resource may follow the same reporting standards as the internal auditor.

According to the directive, an Islamic financial institution may choose an external Shariah audit for each financial year, which may be undertaken by the existing external auditors or an independent external Shariah auditor. For the purposes of this clause, the provisions of sections 223 and 247 of the Companies Act, 2017 may be complied with in respect of an external Shariah audit and an external Shariah auditor respectively, and the audit firm having experience in Islamic finance may be preferred.

The scope of an external Shariah audit may include an independent and objective assessment of business compliance with Shariah principles and rules and any further conditions imposed by the Commission from time to time. The external Shariah auditor can assess the compliance of the Islamic financial institution’s financial arrangements, contracts and transactions with Shariah principles and rules, the SECP added.



Please enter your comment!
Please enter your name here