Delivering the welcome address, the CBB governor said that the AAOIFI set up seven standards relating to governance and two relating to ethics.
The deficiencies found in financial institutions’ governance has been repeatedly highlighted in the past five years -- following the commencement of the Global Financial Crisis in 2007, he added.
Of the three standards on governance, issued by AAOIFI, the first focuses on the Audit & Governance Committee. The standard urges the audit committee to review the use of restricted investment accounts’ funds.
The standard emphasises the need to ensure that funds are invested in accordance with terms agreed with the customer.
“Too often over the past five years we have seen how customers’ interests have been relegated to change focus to bonuses and share price. Neglecting customers is at the risk of losing them,” said the central bank chief.
Caring for the interests of customers is carried on in the AAOIFI Governance Principles paper issued in 2005. In particular Principle 3 of this paper warns against inequitable treatment of fund providers, said Al Maraj.
The 2009 AAOIFI Corporate Social Responsibility paper also focuses on dealing responsibly with clients and ‘par excellence’ customer service. If you couple the governance standards with the ethics paper for employees of financial institutions, you find a formidable set of requirements, principles and standards relating to putting the interests of customers first, he added.
The CBB, he said, is pushing ahead with the review of its corporate governance and business conduct rules, as also improving levels of disclosures, to raise the bar for corporate governance.
The CBB chief said that a review of the CBB corporate governance requirements has completed its first stage of internal review.
“Coupled with governance is Shari'a. From the perspective of the CBB as a regulator, we have noted that all too often, the approach of banks, particularly conventional banks has been to start with a conventional transaction or product and then try to give it a finishing coat of Shari'a compliant paint. Financial institutions must not regard Shari'a compliance as the finishing touch to product development. Instead, product development needs to start from Shari'a principles: i.e. Islamic financial institutions must become Shari'a driven,” urged Al Maraj.
The growth of Islamic finance hinges on addressing the interest of customers, governance and Shari'a compliance satisfactorily, he surmised.
(Bahrain News Agency / 07 May 2012)
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