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REGULATORY ISSUES IN
ISLAMIC BANKING SERVICES
DR. AZNAN HASAN,
DEPARTMENT OF ISLAMIC LAW,
AHMAD IBRAHIM KULLIYYAH OF
LAWS
1
OUTLINES
Banking System
Mon.
Saving
Institution
Non-mon.
BNM,
Com. Bank
Finance Com
Merchant Banks Financial market
Discounts Houses
etc
CM
MM
Equity
Bond
Der.
DFIs
BSN
BRM
BP
Leasing Com.
Etc
Insurance
Com.
Islamic Banking
IIMM
Takaful
Non Financial
Institution
Islamic Capital
Market
4
Regulatory Laws
Laws related to
transactions
ICM
CMSA 2007
Various Rules
& Guidelines
Contd
Contd
Contd
1)Establishment:
51.
(1) The Bank may establish a
Shariah Advisory Council on Islamic
Finance which shall be the authority for
the ascertainment of Islamic law for the
purposes of Islamic financial business.
(2) The Shariah Advisory Council may
determine its own procedures.
Contd
(a) to ascertain the Islamic law on any financial matter and issue a ruling
upon reference made to it in accordance with this Part;
(b) to advise the Bank on any Shariah issue relating to Islamic financial
business, the activities or transactions of the Bank;
(c) to provide advice to any Islamic financial institution or any other
person as may be provided under any written law; and
(d) such other functions as may be determined by the Bank.
Contd
Contd
Contd
Contd
(a) take into consideration any published rulings of the Shariah Advisory
Council; or
(b) refer such question to the Shariah Advisory Council for its ruling.
(2) Any request for advice or a ruling of the Shariah Advisory Council
under this Act or any other law shall be submitted to the secretariat.
Contd
Contd
Promotion of Malaysia as an
International Islamic Financial Centre
Related Guideline
Application of the GL
Shariah Committee
23
Membership
24
Restrictions
IBA
BAFIA
Takaful
DFIA
25
Regulatory
- IBA
- BAFIA
Adjudication
- What law will be applicable
- Advantages and Disadvantages
27
Contd
29
Definition:
Observation
Opportunities
Threats?
33
34
Issues
Contd
37
39
42
43
44
Contd
A Syariah Advisory Body is set
up to ensure that the business of
the bank does not contravene the
Islamic law.
45
Issue
46
Contd
Important Provisions
48
Development Financial
Institutions Act
RELEVANT STATUTES
ON IBF
Real Property Gains Tax Act
1976
Stamp Act 1949
Government Investment Act
1983
Takaful Act 1983
Sec
4 Stamp Act
Principle
document based on
the schedule (ad volarem)
Subsidiary documents RM10
Sec 14A
Fees
for IB docs
Further exemptions
60
Relevant Provision
62
63
Contd
Jurisdiction on IBF?
-
Furthermore
Cases on IBF
Contd
69
e.g:
Bank Kerjasama Rakyat Malaysia v Emcee
Corporation [2003] 1 CLJ 625, COA.
.the facility is an Islamic facility, but that
does not mean that the law applicable in this
application is different from the law that is
applicable if the facility were given under
conventional banking. The charge is a charge
under the national Land Code (NLC). The remedy
available and sought is a remedy provided by the
NLC. The procedure is provided by the Code and
the Rules of the High Court 1980. The court
adjudicating it is the High Court. So, it is the same
law that is applicable, the same order that would
be, if made, and the same principles that should be
applied in deciding the application.
70
Local Cases.
DATO'
Contd
He had also applied for an order that the
Property Sale Agreement and the Property
Purchase Agreement executed by the parties
dated 6 May 1984 be declared null and void and
of no effect and that consequent to both these
prayers, the respondent be ordered to return the
titles of the properties, free of all encumbrances,
to him.
Claimed documents amounted to a colourable
exercise to defeat the very purpose and intention
of the Malay Reservations Enactment 1930 of
Kelantan
72
UK cases
Shamil Bank of Bahrain EC v
Beximco Pharmaceuticals Ltd &
ors [2004] All ER 1072, COA
England
Symphony Gems case.
73
Contd
Contd
Sanghi Polyesters Ltd (India) v. The
International Investor (KCFC) [2000]
Lloyds Rep 480 QBD England.
- Istisna contract provided that any dispute
shall be governed by the laws of England
except to the extent it may conflict with
the Islamic Sharia which shall prevail.
Held: Whatever Shariah law might be, it
was not the law of England and Wales
75
POTTER LJ said that one principle expressly stated in the Qur'an was that the charging of interest
upon a loan was "Riba" and was contrary to the Sharia. The bank's claims against the first and
second defendants were made under two Morabaha agreements [sale contracts recognised as
valid by Islamic law] and against the third, fourth and fifth defendants as guarantors. The principle
defence advanced was that the agreements amounted to unlawful agreements to pay Riba and
were thus void and/or unenforceable.The task of construction was to ascertain the presumed
intention of the parties. The proviso "subject to the principle of the Glorious Sharia'a" should be
approached on a basis which was reconcilable with the purpose evident from the words which
followed, rather than operating to defeat such purpose. Mr Hacker conceded that there could not
be two governing laws and that the governing law was that of England. He argued that the clause
should be read as incorporating simply those specific rules of Sharia which related to interest and
to the nature of Morabaha contracts. The doctrine of incorporation could only sensibly operate
where the parties had by the terms of their contract sufficiently identified specific "black letter"
provisions of a foreign law or an international code or set of rules apt to be incorporated [italics] as
terms of the relevant contract [italic] such as a particular article or articles of the French Civil Code
or the Hague Rules. By that method, English law was applied as the governing law to a contract
into which the foreign rules had been incorporated.
76
Advantages
77
Disadvantages
Example
DATO'
Contd
He had also applied for an order that the
Property Sale Agreement and the Property
Purchase Agreement executed by the parties
dated 6 May 1984 be declared null and void and
of no effect and that consequent to both these
prayers, the respondent be ordered to return the
titles of the properties, free of all encumbrances,
to him.
Claimed documents amounted to a colourable
exercise to defeat the very purpose and intention
of the Malay Reservations Enactment 1930 of
Kelantan
80
How to remedy
81
Contd
82
Arbitration
Definition
Principal Characteristics
Arbitration is consensual
The parties choose the arbitrator(s)
Arbitration is neutral
Arbitration is a confidential
procedure
The decision of the arbitral tribunal is
final and easy to enforce
85
Advantages / disadvantages
of arbitration vis--vis litigation
Litigation
Multiple
proceedings under
different
Laws with risk of conflicting
results
Possibility of actual or perceived
home court advantage of party
that
litigates in its own country
Arbitration
A
Possibility of appeal
Public proceedings
86
Quotation
To pursue a lawsuit is to gamble on
victory. To elect conciliation is to seek
fairness.
Victories
undermine
relationships.
Fairness
strengthens
them. Those who build for the long term
would do well to choose conciliation."
Eliot
Richardson:
An
statesman and lawyer
American
87
Contd
Issues in Arbitration
Contd
Contd
Contd
Contd
Human Capital
Globalisation and its effect on small IFIs
Issue of risk and liquidity management
Divergences of Opinion
Legislative framework
Documentation of Islamic Financial
Contracts
95
Bankers
- Attitude: Conventional or Islamic;
what matters are making money
- Adequate knowledge about IBF
- Compliance in structures and legal
documentation, but what about
implementation? E.g. sequence of
contracts
97
Shariah Advisors
Cond
99
Suggestions
100
Contd
Divergences of Opinion
102
Legislative framework
Unfriendly?
E.g. compliance with the National Land Code on
registration of transfer & charges beneficial &
legal ownership
Compliance with various state enactments that
restrict the dealing on landed properties
Continuous revision and amendment to suit the
practice. Regulator should act pragmatically, and is
willing to revisit any legal provision should the
provision impedes the practice of IBF. Consequence
promulgation of new law, amendment exemption
or supplement must be considered faster
104
Conclusion
THANK YOU
WASSALAM
106