The Governance of Shariah Committee
Introduction
The Shariah Governance Policy (SGP), issued in 2019, revised the Shariah Governance Framework (SGF) originally issued in 2011. The SGP provides guidelines for governing Shariah in the industry. The second article delves into the governance aspect of the Shariah committee, shedding light on their roles, responsibilities, and the minimum requirements for a Shariah committee charter. It also emphasizes the importance of accountability and objectivity, as well as the decision-making methodology
Shariah committee charter
The establishment of a SC Charter is crucial for outlining the mandate, procedures, and responsibilities of the committee. These are the key elements that should be included in the charter:
1. Mandate & Procedures: The charter should clearly define the areas of authority approved by the board for the Shariah committee. This will ensure that the committee operates within its designated scope.
2. Reporting Arrangements
3. Reporting Arrangements of Management: Similarly, the charter should define reporting arrangements for management to keep the SC informed about their work, key deliberations, and decisions on matters delegated to them. This includes matters where management performs certain functions, such as providing advice, seeking approval, or seeking endorsement.
4. Quorum for Committee Meetings: The charter should establish rules for the quorum required for SC meetings. It is essential that a majority of Shariah qualified members be present at each meeting to ensure the committee's expertise is adequately represented.
5. Conducting Committee Meetings: The charter should outline the rules for conducting SC meetings. These rules must meet the minimum expectations set forth in SGP, ensuring that meetings are conducted efficiently and effectively.
6. Responsibility: The charter should clearly define the responsibilities of the Shariah committee, per the minimum expectations outlined in the SGP.
Shariah committee's roles and responsibilities
The SC plays a crucial role in providing objective and sound advice to Islamic financial institutions (IFI) to ensure their aims, operations, business affairs, and activities follow Shariah principles. These are the general responsibilities of the Shariah committee:
1. Regulatory Requirements
2. Providing Advice on Shariah Matters: The SC is responsible for providing decisions or advice to the IFI on the application of rulings from the Shariah advisory council (SAC) of Bank Negara Malaysia or standards on Shariah matters relevant to the IFI's operations, business affairs, and activities. This is facilitated by Shariah review function which advises the board, Shariah committee, and management on the application of SAC resolutions.
3. Referring Matters to the SAC: The SC is also responsible for providing decisions or advice on matters that require a reference to be made to the SAC. This typically involves submitting product proposals to BNM, which may require the IFI to present the proposal to the SAC. The SC advises on the submission paper and may participate in the presentation to the SAC.
4. Addressing Shariah Non-Compliance Events: The SC deliberates and affirms Shariah non-compliance findings identified by relevant functions within the IFI. Once a potential non-compliance event is confirmed, the SC endorses a rectification measure to address the issue.
It is important for the Shariah department to compile the roles and responsibilities of the SCin accordance with regulatory requirements for easy reference. Additionally, the board may establish other roles and responsibilities for the SC that are not specifically mentioned in the BNM requirements.
Accountability of the Shariah committee
The accountability of the SC is of utmost importance, as it is responsible for the quality, accuracy, and soundness of its decisions and advice. This accountability entails the committee's ability to defend and justify their decisions when questioned by the board. To maintain transparency and consistency, the decisions made by the SC should align with the explanations provided verbally and be accurately reflected in the committee's minutes.
Any inconsistency between the information confirmed in the minutes and what is communicated orally to the board can have significant repercussions. It may undermine the credibility of the committee and raise concerns about the reliability of its decision-making process. Therefore, it is crucial for the committee to ensure that its decisions and advice are consistently presented and accurately documented to maintain trust and uphold its accountability.
Decision-making methodology of the Shariah committee
The SC plays a critical role in ensuring the compliance and soundness of decisions and advice within an organization. To achieve this, it is essential for the committee to establish a robust decision-making methodology that considers relevant business and risk practices. This methodology should encompass several factors to guide the committee's decision-making process effectively.
Firstly, compliance with regulatory requirements set by Bank Negara Malaysia (BNM) is crucial. The SC must be well-informed by management regarding the product or issue presented, ensuring its compliance with BNM's regulatory requirements.
Secondly, alignment with SAC rulings is paramount. The committee should ensure that its decisions and advice are consistent with SAC rulings, promoting adherence to the regulatory framework established by BNM. This alignment fosters consistency and strengthens the overall integrity of the decision-making process.
Additionally, the SC should consider and align its decisions with established Shariah precedents. By referencing previous Shariah decisions, the committee can maintain consistency and ensure that its rulings are in line with established principles. In cases where a revision to a previous decision is made, the minutes should clearly document the impact of the new decision, providing transparency and clarity.
It is important to note that the guidelines mentioned above serve as a minimum standard for SC decision-making. Institutions may choose to adopt additional methodologies or processes based on their specific needs and circumstances. The objective is to ensure that SC decisions are well-informed, compliant with regulatory requirements, and consistent with established Shariah precedents.
Reporting of Shariah issues
When the SC has reason to believe that there are any shariah issues or matters that could impact the safety and stability of an IFI (IFI), it is important for them to immediately inform the board about it. This notification can be done through the shariah department communicating with the company secretary.
It is crucial to understand that if these shariah issues or matters that have the potential to lead to Shariah non-compliant events and are not promptly reported to the board, they could jeopardize the safety and stability of the IFI. By promptly notifying the board, the SC ensures that the necessary actions can be taken to address these issues and prevent any negative impact on the IFI. This initiative-taking approach helps in maintaining the safety and soundness of the institution.
It is important for the SC to prioritize the prompt reporting of any shariah issues or matters that could affect the IFI's safety and stability. This ensures that the board is well-informed and can make informed decisions to safeguard the institution.
Seeking guidance from the SAC in unresolved matters
In situations where the SAC(SAC) has not issued any rulings on a specific matter or when the SCof an IFI (IFI) is unable to reach a decision or provide advice, it is important for the IFI to refer to the SAC for guidance.
When there are no existing SAC rulings on a particular matter or when the SC is unable to come to a decision or provide advice, referring to the SAC ensures that the IFI receives authoritative guidance from SAC themselves. The SAC is responsible for interpreting and providing guidance on matters related to shariah compliance in Islamic finance industry.
Additional restrictions in applying SAC rulings
When the SC of an IFI (IFI) determines or advises the need for additional restrictions when applying the rulings of the SAC(SAC), certain steps must be followed to ensure compliance and transparency.
Firstly, it is crucial for the IFI to document the discussions and justifications behind the Shariah committee's decision or advice. This documentation helps in maintaining a clear record of the reasoning behind the additional restrictions imposed by the committee.
Secondly, the IFI must seek the views of the board regarding the decision or advice made by the SCin relation to the SAC ruling. This ensures that the board is aware of and has an opportunity to provide input on the decision.
Lastly, immediate notification must be given to BNM on such SC's decision or advice. This notification ensures that BNM is informed about the actions taken by the IFI.
Addressing Shariah non-compliance events
To ensure strict adherence to Shariah principles, IFIs (IFI) must take initiative-taking measures to address any instances of non-compliance. One crucial step is for the IFI to submit all records of the Shariah committee's decisions or advice regarding rectification plans for Shariah non-compliance events to Bank Negara Malaysia. However, it is imperative that these submissions are supported by key deliberations.
The deliberations should encompass the Shariah committee's decision, the rationale behind such decisions, and any significant concerns or dissenting views related to the decision or advice. It is important to highlight dissenting views within the Shariah committee, as they represent minority opinions that may differ from the majority decision. This practice allows for a comprehensive understanding of the decision-making process and provides stakeholders with insights into the various perspectives considered. The aim is to strengthen the IFI's Shariah governance policy by ensuring that all Shariah non-compliant events are effectively addressed through well-documented deliberations and inclusive decision-making processes.
Delegation of authority to management
If the SC delegates any of its responsibilities to any persons or function, it is important for an IFI (IFI) to ensure proper procedures and accountability.
These are the key considerations for effective delegation of authority:
1. Firstly, the IFI must clearly define the mandate, areas of delegated authority, and operating procedures in the Shariah committee's charter and the IFI's internal policies. This ensures that all parties involved understand their roles and responsibilities.
2. Secondly, reporting arrangements should be established to keep the SC informed of the work, key deliberations, and decisions on the delegated matters. Regular updates and communication are crucial to maintain transparency and ensure that the SC remains informed and involved.
3. Lastly, it is essential for the SC to remain fully accountable for the decisions and any implications arising from the delegated responsibility. Regardless of who the delegation is made to, the SC must take ultimate responsibility for the outcomes.
It is worth noting that the wider interpretation allows the SC to delegate to any persons or function, not necessarily limited to the Shariah department, which typically serves as their secretariat. However, industry practice across IFIs often views the Shariah department as the de-facto delegated department of the SC due to their role as the secretariat.
To ensure clarity and practicality, it is proposed that the authority of the SC as provided by various regulatory policies and guidelines set by Bank Negara Malaysia (BNM) to clearly state which persons or functions are granted the authority under each specific BNM policy.
Objectivity of Shariah committee
Maintaining professional objectivity
To fulfill their responsibility, SC members must ensure that their judgment in arriving at a Shariah decision or advice is not influenced by their other professional commitments. It is recommended that an SC member should not have competing time commitments that impair their ability to effectively discharge their duties. The board may establish a policy on the maximum number of external professional commitments an SC member can have, in addition to the maximum allowable number of IFIs they can serve. Many SC members work full-time as university lecturers while also serving as members in other institutions. For example, if a particular SC member works as a lecturer and serves the maximum of three IFIs, they will have a total of four different time commitments. It is essential for SC to ensure that they can maintain professional objectivity regardless of the number of time commitments they currently have. An SC member must prioritize and allocate an adequate amount of time to thoroughly prepare for and actively participate in SC meetings. This includes dedicating sufficient time to review meeting documents, conduct research and analyze issues. Additionally, the member should ensure their schedule allows for regular attendance at scheduled meetings regardless of their other time commitments.
Another aspect of professional objectivity relates to the products or customers of the IFI. In some cases, a committee member may also be a customer of the IFI they serve, or their family and relatives may be customers. It is crucial for members to ensure that their personal status or the status of their family and relatives as customers of the IFI does not impair professional objectivity in their Shariah judgments. By adhering to these principles and implementing measures to safeguard professional objectivity, Shariah committees can enhance the credibility and integrity of their decision-making processes.
Consistency in views and opinions within Shariah committee
Consistency in views and opinions is a vital aspect of the role of an SC member. It is essential for members to ensure that their views and actions do not undermine the rulings of the SAC(SAC), or any decisions made by the SC they represent.
An SC member must strive to maintain consistency in providing their views and opinions. They should avoid acting in a manner that contradicts or casts a negative light on the rulings of the SAC. It is crucial for members to align their decisions with the established rulings to maintain the integrity and credibility of the SCand the overall Islamic finance industry.
Furthermore, an SC member must ensure consistency in their views and opinions across different IFIs. For instance, if a member holds a particular view on a specific Shariah matter in IFI A, they should ensure that the same view is consistently provided when in IFI B and IFI C which they also serve. This ensures that the member's judgment remains consistent and unbiased, regardless of the institution they are serving.
Shariah committee meeting
The chairman of the SC which must be a Shariah qualified person is responsible for leading and ensuring the effective functioning of the committee. To fulfill this role, the chairman must:
(a) Establish appropriate procedures to govern the deliberations and proceedings of the Shariah committee. These procedures should outline the process of deliberations, as well as how meetings are conducted from pre-meeting engagement to post-meeting dissemination.
(b) Serve as a direct liaison between the board and the SC to promote better understanding and communication between both entities. It is recommended that the chairman present the SC meeting minutes at board meetings to enhance visibility and interaction between the committee and the board.
(c) Ensure that Shariah decisions or advice are made based on a solid and well-informed foundation. This includes employing a robust decision-making methodology that considers all business, operational, and risk implications as assessed by the Shariah committee. It is crucial for management to play a key role in providing information and considering all relevant aspects to facilitate SC decision making process.
(d) Encourage healthy discussion, participation, and contribution within the Shariah committee, and ensure that dissenting views can be freely expressed and discussed. The chairman must ensure that all committee members are given sufficient time to express their opinions and views on the matters being discussed.
At a minimum, an IFI (IFI) is required to hold SC meetings at least once every two months, which equates to six times a year. However, IFIs operating as Islamic windows or foreign branches in Malaysia have a relaxed requirement of holding a minimum of two meetings per year. Each SC member must attend at least 75% of the meetings held in each financial year. For instance, if there are six meetings in a year, 75% would be equivalent to 4.5 meetings, which can be rounded up to five meetings.
It is important to note that an SC member cannot appoint another person to attend or participate in meetings on their behalf due to confidentiality and privacy requirements. All meeting documents are considered private and confidential, and access should be restricted to the respective member only. IFIs must ensure that attendance at SC meetings, other than physical presence, remains the exception rather than the norm. If a member is unable to attend physically or if the meeting is conducted virtually, appropriate safeguards must be implemented to maintain the confidentiality of the deliberations. For example, the member should avoid public places and ensure a secure environment when attending the meeting.
IFI's annual reports must disclose the number of SC meetings held during the financial year and the attendance of each committee member. Regarding the quorum for SC meetings, an IFI must ensure that a majority of Shariah qualified members are present at each meeting. The minimum composition of the committee is three members for IFIs operating as Islamic windows or foreign branches in Malaysia, and five members for other IFIs. For a committee with three members, most Shariah qualified members must be two, while for IFIs with five members, the majority must be three. This requirement reflects the nature of the committee, which provides advice and makes decisions on Shariah matters based on a simple majority basis determined by Shariah qualified members.
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In cases where a matter to be discussed by the SC presents a conflict of interest to any committee members, it is imperative that the member in question excuses themselves from the discussion and refrains from voting on that matter. To facilitate the smooth functioning of the committee, the SC must be given access to all necessary information which must be timely, accurate, comprehensive, and clear.
Furthermore, the IFI must grant the SC access to advice from third-party experts whenever required. The cost associated with obtaining such advice should be borne by the IFI. If any party becomes aware that the Shariah committee's access to relevant information or request for third-party expert advice is being declined, denied, or withheld by any officers or employees of the IFI, they have a responsibility to inform the board of the situation. The board should then take appropriate action to rectify the issue. It is important to note that in this context, the term "any party" includes an SC member.
While the board and senior management may offer valuable insights on business, technical, or operational matters discussed during SC meetings, it is crucial that they do not exert undue influence that could hinder the committee's ability to exercise objective judgment in its deliberations and decision-making processes. If such arrangement is practiced, it is proposed that board and senior management to leave the meeting when SC start their deliberation.
To ensure transparency and accountability, an IFI must maintain clear and accurate minutes of SC meetings. These minutes should record the decisions or advice provided by the committee, highlight the key deliberations, outline the rationale behind each decision or advice, and document any significant concerns or dissenting views expressed during the meetings.
Appointment, reappointment, cessation and disqualification of Shariah committee
To ensure the integrity and effectiveness of Shariah committees, it is imperative for the board to establish a rigorous process for the appointment, reappointment and cessation of SC members. This process should include a comprehensive assessment of candidates against the minimum requirements outlined in SGP.
A robust process for appointing and ceasing SC members is crucial for maintaining the credibility and expertise of these committee members. By adhering to a thorough assessment process, organizations can ensure that committee members possess the necessary qualifications, knowledge, and skills to uphold Shariah compliance effectively.
The board holds the responsibility of establishing a clear and well-defined process for the appointment, reappointment, and cessation of SC members. This process should outline the steps involved, including the identification of potential candidates and the assessment of their qualifications.
The process must involve a comprehensive assessment of candidates against the minimum requirements specified in SGP. These requirements may include educational qualifications, experience in Islamic finance, proficiency in Shariah principles, and a history of ethical conduct. The assessment should be conducted objectively and transparently, ensuring that candidates meet the necessary criteria for serving on the Shariah committee.
The process should also address the reappointment and cessation of SC members. Reappointment should be based on an evaluation of the member's performance, continued adherence to the minimum requirements, and their contribution to the committee's objectives. Cessation should occur when a member no longer meets the requirements or voluntarily steps down.
The process should prioritize transparency and accountability. It should clearly define the roles and responsibilities of the board, management, and relevant stakeholders involved in the appointment and cessation process. This ensures that decisions are made in a fair and unbiased manner, promoting trust and confidence in the Shariah committee's operations.
The board should regularly review and improve the appointment and cessation process to adapt to changing organizational needs, industry dynamics, and regulatory requirements. By continuously enhancing the process, organizations can strengthen the quality and effectiveness of their Shariah committees.
These are the criteria for the appointment of SC members in IFIs. It aims to ensure that only qualified individuals, who possess the necessary expertise and meet specific requirements, are appointed to serve on the Shariah committee.
To be eligible for appointment or reappointment as an SC member, the following conditions must be fulfilled:
1. Muslim Individual: Only Muslim individuals can be appointed as SC members. IFIs are prohibited from appointing consultancy firms offering Shariah advisory services.
2. Fit and Proper Criteria: The person must continuously meet the requirements specified in the policy document on fit and proper criteria. These requirements include:
a. Probity, Personal Integrity, and Reputation: The individual must demonstrate high moral character, personal integrity, and a good reputation.
b. Competency and Capability: The person should possess the necessary knowledge, skills, and experience to fulfill the responsibilities of an SC member.
c. Financial Integrity: The individual must exhibit financial integrity and be free from any financial misconduct or impropriety.
3. Shariah Qualified Person:
a. Academic Qualifications: The individual should hold at least a bachelor's degree in Shariah, which includes studies in Usul Fiqh (Principles of Islamic Jurisprudence) or Fiqh Muamalat (Islamic Transaction/Commercial Law). It is important to note that some bachelor's degrees in Shariah may not explicitly mention the Shariah branding, but the appropriateness of the degree will be assessed based on the subjects studied.
b. Knowledge and Experience: The person must possess a solid understanding of Shariah principles, along with reasonable knowledge and experience in the Islamic finance industry. Previous industry experience is considered a bonus.
c. Proficiency in Languages: The individual should demonstrate strong proficiency in written and verbal Arabic, as it is the academic language of Shariah. Additionally, a good command of either Bahasa Malaysia or English is essential, considering the banking language and the importance of understanding the Malaysian culture.
4. Expert in Relevant Field: If an IFI decides to nominate a non-Shariah qualified person, they may propose experts who possess skills, knowledge, and experience relevant to support the roles and responsibilities of the Shariah committee. The specific field of expertise is left to the discretion of the IFI's board, ensuring that it aligns with the effective functioning of the committee. It is important to note that this requirement is not compulsory, and IFIs can choose to appoint all members from a Shariah background. If non-Shariah backgrounds are nominated, most of the SC members must have a Shariah background.
To maintain the highest standards of professionalism and ethics, a person shall be disqualified from being appointed, reappointed, or holding office as an SC member if any of the following conditions apply:
1. Bankruptcy or Financial Misconduct - The individual is an undischarged bankrupt or has suspended payments or has compounded with creditors, whether within or outside Malaysia.
2. Criminal Offenses Relating to Dishonesty or Fraud - The person has been proven guilty of a criminal offense relating to dishonesty or fraud under any written law or the law of any country, territory, or place outside Malaysia.
3. Legal Restrictions - Prevention of Crime, Drug Trafficking, or Immigration Laws:
a. Detention, Supervision, or Deportation: An order for detention, supervision, or deportation has been made against the individual under any law relating to the prevention of crime, drug trafficking, or immigration.
b. Restrictions or Supervision: Any form of restriction or supervision, imposed by bond or otherwise, has been imposed on the person under any law relating to the prevention of crime, drug trafficking, or immigration.
4. Pending Criminal Proceedings: If criminal proceedings are pending against an SC member for any offense mentioned in point two, the individual shall not:
a. Act in their capacity as an SC member or hold any other office within the IFI.
b. Be involved, directly or indirectly, in any activity, affairs, or business of, or related to, the IFI, unless permitted by the board with conditions specified by BNM.
Succession planning for Shariah committee
The board holds the responsibility of developing clear and well-defined succession plans for SCmembers. These plans should outline the process for identifying, evaluating, and selecting candidates who possess the requisite qualifications, expertise, and experience in Islamic finance and Shariah principles.
Succession plans should not be static documents but must undergo regular review and updates. The board should periodically assess the effectiveness of the existing plans, considering changes in organizational needs, industry dynamics, and regulatory requirements. This ensures that the plans remain relevant and aligned with the evolving landscape of Islamic finance.
The succession planning process necessitates a thorough assessment of potential candidates against the minimum requirements specified in SGP.
SC eligibility's restrictions
(a) An SC member or their immediate family member must not hold an executive position in the IFI during their appointment tenure or within the two (2) years preceding their proposed appointment as an SC member. This means that if the sourcing of the SC member is internal, for example, from the current executives in the Shariah department, review, risk, or audit, their appointment as a committee member can only take effect two years after their last day in office. It is also possible for them to be sourced internally from non-Shariah positions within the same IFI. Alternatively, this requirement suggests that an SC member nominated from executives of IFI A can be appointed by IFI B without the need to observe the two-year grace period after their last day in office at IFI A.
(b) An SC member must not be a substantial shareholder, executive director, or senior officer of the IFI or any of its affiliates. A substantial shareholder is defined as holding an aggregate interest of 5% or more in the shares of the IFI. The SC candidate should also not hold an executive director or senior officer role in the IFI or any of its affiliates. The key difference between (a) and (b) is that (a) does not impose the requirement of being an executive in any of the IFI's affiliates.
(c) An SC member must not have a significant business or other contractual relationship with the IFI or any of its affiliates within the last two (2) years.
This is up to board's interpretation to define the criteria for what constitutes a "significant business or other contractual relationship", considering the nature, size, and complexity of the IFI's operations.
Maximum tenure as Shariah committee
An SC member is not permitted to serve the same IFI for more than nine (9) years. This requirement takes effect on 1 April 2023, allowing the current SC members serving the industry to complete their tenure, which may have commenced in 2020 pursuant to SGF's effective year, reaching the maximum nine-year period. As per the SGP implemented in 2019, academically, the nine-year limit ended in 2019. Consequently, IFIs may encounter challenges in finding replacements for those who have already served for nine years. To address this, a four-year grace period until 2023 is considered sufficient for IFIs to source suitable replacements, particularly for those approaching the maximum tenure.
Limitations on appointments for Shariah committee
An SC member is restricted from accepting appointments in more than one licensed Islamic bank, one licensed takaful operator, and one prescribed institution. A licensed Islamic bank refers to an Islamic bank licensed under the IFSA 2013. A licensed takaful operator includes a professional retakaful operator also licensed under the IFSA 2013. A prescribed institution refers to development financial institutions licensed pursuant to the DFIA Act. At any given time, an individual can serve as an SC member in three separate IFIs, consisting of one Islamic bank, one takaful operator, and one development financial institution.
However, the requirement does not explicitly include licensed banks and licensed investment banks approved under Section 15(1)(a) of the FSA to carry on Islamic banking business, such as Islamic windows of conventional banks. If this implicit interpretation of the requirement is valid, an individual can serve in three IFIs, as well as an unlimited number of Islamic windows of conventional banks.
Ineligibility of politicians as Shariah committee
An SC member must not hold an active political position. An active politician is defined as an individual who is a member of any national or state legislative body, such as the Dewan Rakyat or Dewan Negara, or who holds a position in a political party as an officer bearer or in a similar capacity. An officer bearer in a political party refers to a person who holds the position of president, vice-president, secretary, treasurer, or any analogous office or position in the party or its branches. The constitution of a political party typically outlines the individuals considered as office bearers at both the central or headquarters level and the party's branch level. The requirement implies that a person who is a regular political party member can still be appointed as SC if they do not hold an active political position.
Application procedures for SC members and Chairman
To appoint or reappoint SC members and the Chairman, an IFI must submit a written application to BNM at least three (3) months prior to the expected start of the candidate's responsibilities. In the case of reappointment, the application must be submitted three (3) months before the SC members tenure expires. The IFI should only apply for appointment or reappointment after conducting an objective assessment and being fully satisfied that the candidate meets the minimum requirements outlined in SGP.
For reappointment and termination of SC members and the Chairman, the IFI must provide justifications for the application and assess the performance of the member, submitting these details to BNM.
If an SC member's tenure has expired and they are proposed for reappointment, they must immediately cease to hold office and refrain from participating in any SC meetings or representing themselves as a member of the IFI's Shariah committee.
In cases where a SC member resigns or is disqualified, the IFI and the SC member are required to promptly notify BNM, providing reasons for the circumstance within fourteen (14) days. Furthermore, the IFI must obtain prior written approval from BNM before terminating a SC member.
Secretariat functions for the Shariah committee
An IFI shall establish a Secretariat, also known as the Shariah Department, to support the effective functioning of the Shariah committee. The Secretariat is responsible for various operational support tasks, including:
(a) Coordinating communication and information dissemination among the Shariah committee, the Board, and senior management. This coordination typically involves working closely with the company secretary for the Board and directly with senior officers or a dedicated committee responsible for specific tasks, such as the Management Risk Committee.
(b) Conducting in-depth research and studies on Shariah issues. This research serves as supporting documentation for business unit submissions to the Shariah committee, such as product approvals or inquiries on Shariah matters. The research should, at a minimum, cover applicable resolutions from the SAC and Shariah precedents set by the Shariah committee. The format of research papers should be advised by the Shariah committee.
(c) Providing day-to-day advice on Shariah matters to relevant parties within the IFI, based on SAC rulings and decisions or advice from the Shariah committee. The Secretariat, acting as the de facto SC at the management level, is expected to fulfill this function. It is important to clearly state this mandate and reporting arrangement in the SC charter as required by SGP.
The officers responsible for research and advisory functions per (b) and (c) must possess Shariah qualifications. This requirement didn’t explicitly mention of education level, as such it can be interpreted to cover diploma in Shariah or a bachelor's degree in Shariah. The best practice recognizes that Shariah qualification refers to a bachelor's degree in Shariah.
(d) Ensuring proper dissemination of decisions or advice from the SC within the IFI. After each meeting, the Secretariat is responsible for disseminating the decisions or advice of the Shariah committee. Typically, the draft decision, verified as accurate by the secretary or head of the Shariah Department, is first forwarded to the relevant business units for necessary action.
(e) The Secretariat also performs administrative and secretarial functions to support the Shariah committee. This includes tasks such as preparing meeting materials and ensuring their accuracy and adequacy, arranging external training for the Shariah committee, processing remuneration payments, preparing board papers for appointments, reappointments, terminations, or resignations of SC members, and coordinating with the company secretary for board related matters.
It is important to note that for tasks (a), (d), and (e), while the SGP does not explicitly require officers with a Shariah background, it is advisable to consider individuals with a Shariah background. This is because SC decision-making involves discussions on Shariah materials, which individuals without a Shariah background may find challenging to understand. The inclusion of officers with a Shariah background can contribute to maintaining the quality of secretarial works such as the meeting minutes.
Adequate time must be given to the SC for deliberation on all Shariah matters. The Secretariat has the responsibility to plan and coordinate SC meetings in a manner that promotes sound decision-making, taking into consideration the full-time working commitments of the SC members.