ABU DHABI: The formation of a Gulf-wide sharia council with the mandate to set industry rules, rather than just issue guidelines in its present form, is still "years away", a senior executive at regulatory body AAOIFI on Monday.
Speaking on the sidelines of an industry conference, Assistant Secretary General Khairul Nizam said few expect such a centralized sharia council to be in place before 2013.
"It’s an idea at the moment. It can help the Islamic finance industry because, if the committee has some regulatory bite to it, it can make AAOIFI standards mandatory," said Nizam.
Currently, standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) board are considered guidelines, rather than rules. Some countries such as Bahrain, however, require Islamic institutions to follow the standards.
Nizam said the Bahrain-based body is currently working to issue regulatory guidance for sharia scholars serving on the boards of Islamic institutions, which the regulatory body hopes to finalize by the end of 2011.
"It’s going to be a long process because we have to make sure to get it right the first time," he said.
He said the industry body has had five meetings already to discuss key issues facing scholars that could be regarded as a conflict of interest in the growing $1 trillion Islamic finance industry.
Nizam said there is discussion over whether scholars should have a limit on the number of boards they sit on. Currently just 20 of the top scholars appear on 54 percent of sharia board positions, according to a report by consultancy Funds@Work.
AAOIFI will also address whether scholars should have shareholdings in the institutions they advise on, issues regarding compensation and whether scholars serving on sharia boards can also participate in separate sharia advisory firms that may have relationships with the institutions they serve.
Nizam said an "exposure draft" will be circulated to all Islamic banks by the end of the first quarter for review.
