All Islamic financial institutions (IFIs) including entities offering Islamic financial services would 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 drafted a concept note. According to the document, 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.
To achieve such standardization, SECP presently has deployed a flexible and market-oriented strategy for the adoption/adaptation of AAOIFI standards. The policy is highly sensitized to industry feedback and emergent constraints of the 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.
Throughout 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 the 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, the 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, 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 a need basis.
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), based in Bahrain, is the leading international standard-setting body for the development and issuance of standards for the global Islamic finance industry. AAOIFI is entrusted to ensure the soundness and stability of the Islamic financial services industry including banking, capital market, and insurance/takaful in accordance with Shariah as well providing guidance for regulatory and supervisory bodies.
AAOIFI has footprints in around thirty-seven countries having 150 institutional members – including central banks, Islamic financial institutions (IFIs), and other participants of the international Islamic finance industry. The Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP) are also the regulatory members of AAOIFI.
AAOIFI has, so far, promulgated a total of 119 standards and technical pronouncements in the area of Shariah, accounting, auditing, governance, and ethics for IFIs and Islamic finance transactions and structures, including Waqf and other ancillary institutions, to achieve a progressive degree of harmonization in the international Islamic finance practices.
AAOIFI’s standards are fully or partially adopted by multiple regulators in more than 18 countries, and several others follow these standards as guidelines or have developed their standards and regulations in the light of AAOIFI standards.