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  • RM-7 RM-7 Operational Risk

    • RM-7.1 RM-7.1 Operational Risk

      • RM-7.1.1

        This Chapter sets out principles pertaining to appropriate systems and controls to address Islamic bank licensees' operational risks. Islamic bank licensees are exposed to operational risk through failures in their internal controls involving processes, people and systems. The internal controls should provide reasonable assurance of the soundness of operations and reliability of reporting.

        January 2013

    • RM-7.2 RM-7.2 Types of Operational Risk relevant to Islamic Banks

      • RM-7.2.1

        Islamic bank licensees must consider the full range of material operational risks affecting their operations, including the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Islamic bank licensees must also incorporate possible causes of loss resulting from Shari'a non-compliance and the failure in their fiduciary responsibilities.

        January 2013

      • RM-7.2.2

        Islamic bank licensees are exposed to risks relating to Shari'a non-compliance and risks associated with the IIFSs' fiduciary responsibilities towards different fund providers. These risks expose Islamic bank licensees to fund providers' withdrawals, loss of income or voiding of contracts leading to a diminished reputation or the limitation of business opportunities.

        January 2013

      • RM-7.2.3

        Shari'a non-compliance risk is the risk that arises from Islamic bank licensees' failure to comply with the Shari'a rules and principles determined by the Shari'a Board of the Islamic bank licensees and the CBB.

        January 2013

      • RM-7.2.4

        Shari'a compliance is critical to Islamic bank licensees' operations and such compliance requirements should permeate throughout the organisation and their products and activities. As a majority of the fund providers use Shari'a-compliant banking services as a matter of principle, their perception regarding Islamic bank licensees' compliance with Shari'a rules and principles is of great importance to their sustainability. In this regard, Shari'a compliance is considered as falling within a higher priority category in relation to other identified risks.

        Amended: April 2013
        January 2013

      • RM-7.2.5

        The bank's Shari'a Supervisory Board is responsible for establishing policies to deal with any Shari'a non-compliant transaction, taking into account its reputational risk and it must also follow existing AAOIFI disclosure requirements.

        January 2013

      • RM-7.2.6

        Fiduciary risk is the risk that arises from Islamic bank licensees' failure to perform in accordance with explicit and implicit standards applicable to their fiduciary responsibilities. As a result of losses in investments, Islamic bank licensees may become insolvent and therefore unable to:

        (a) Meet the demands of current account holders for repayment of their funds; and
        (b) Safeguard the interests of their IAHs. Islamic bank licensees may fail to act with due care when managing investments resulting in the risk of possible forgone profits to IAH.
        January 2013

    • RM-7.3 RM-7.3 Operational Considerations

      • RM-7.3.1

        Islamic bank licensees must implement a comprehensive and sound framework for developing and implementing a prudent control environment for the management of operational risks arising from their activities.

        January 2013

      • RM-7.3.2

        The framework referred to in Paragraph RM-7.3.1 should be consistently implemented throughout an Islamic bank licensee's organisation and understood by all relevant staff.

        January 2013

      • RM-7.3.3

        Islamic bank licensees should conduct periodic reviews to detect and address operational deficiencies. The reviews and evaluation of internal controls should include independent audit coverage and assessment by internal and/or external auditors.

        January 2013