BC-B.1.1

Islamic bank licensees are required to develop a Code of Business Conduct that contractually obliges the bank's employees and representatives to carry out their duties and responsibilities in a fair and honest manner. Banks must also refer to Module HC 'High- level Controls' for requirements on code of business conduct.

BC-B.1.2

An Islamic bank licensee must aspire to the highest standards of truthfulness, honesty and fairness in all its statements and dealings, and must treat its customers fairly.

BC-B.1.3

The fundamental requirement with regard to truthfulness, honesty and fairness is that an Islamic bank licensee must not, either deliberately or through negligence, issue information that is potentially misleading to stakeholders or the market, nor must it manipulate prices by using any of the means whereby this may be done. Such means include, but not limited to, making a false market, issuing misleading price-sensitive information and price-fixing in conjunction with other market players. Where applicable, banks must also refer to Volume 6 (Capital Markets)—Prohibition of Market Abuse and Manipulation Module 'MAM'.

BC-B.1.4

An Islamic bank licensee must not, either deliberately or through negligence, issue information that is misleading to stakeholders or the market regarding the Shari'a compliance of its products or services, or of Sukuk issuances with which it is involved.

BC-B.1.5

An Islamic bank licensee must not mislead clients or the market through the withholding of material information.

BC-B.1.6

An Islamic bank licensee must have appropriate procedures whereby whistle-blowers are treated honestly and fairly, with no cover-ups or victimisation. See Section BC-B.1.7. With regard to fairness, an Islamic bank licensee must follow best practice in establishing procedures for handling complaints from clients. See Chapter BC-10.

BC-B.1.7

An Islamic bank licensee should establish a procedure that can be made clear to the public whereby their employees and representatives are contractually obliged to carry out their duties and responsibilities in accordance with a code of business conduct that requires fairness and honesty. To embody this self-binding commitment, an Islamic bank licensee should publish a client's charter that sets out the relevant parts of its code of business conduct as a written promise to guarantee the delivery of honest and fair service to its clients as demanded by Shari'a. An Islamic bank licensee should refer to Paragraphs BC-B.1.8 and BC-B.1.9. This charter will include such matters as procedures for dealing fairly, honestly and efficiently with complaints from customers or investors, and with whistle-blowers and any problems to which they draw attention. Refer to Paragraph HC-3.3.3.

BC-B.1.8

A client's charter is a written commitment made by an Islamic bank licensee in terms of the deliverance of its outputs or services to its customers inclusive of stakeholders. It is an assurance by the Islamic bank licensee that outputs or services rendered will comply with the standards declared as quality standards. Generally, quality standards of outputs or services are standards that will fulfil clients' needs and tastes.

BC-B.1.9

The assurances contained in the charter will ensure the generation of more disciplined, prepared and responsible Islamic bank licensee. Various benefits will be obtained from the establishment of the client's charter.

Benefits to the Public:

Benefits to the Islamic bank licensee:

BC-B.1.10

The Islamic bank licensee must establish a policy with regard to 'whistle-blowing' so as to encourage all employees to report promptly to an appropriate level of management any breach or suspected breach of business conduct principles. The policy must, among other things, clarify:

BC-B.1.11

Islamic bank licensees must apply the requirements of Module PD pertaining to enhancing corporate governance and financial transparency in order to protect customers and facilitate market discipline through better practice in public disclosure.

BC-B.2.1

An Islamic bank licensee must exercise due care and diligence and in the best interests of their stakeholders in all its operations, including the way it structures and offers its products and provides financing, with particular regard to Shari a compliance, and to the thoroughness of research and risk management. See Paragraphs BC-9.12.8 to BC-9.12.13.

BC-B.2.2

Paragraph BC-B.2.1 includes any duty of best execution. In Islamic finance, there are typically two major categories of investors—that is, the shareholders and the investment account holders (IAH). Islamic bank licensees are required to exercise due care and diligence in safeguarding the interests of such investors. Refer to Principle 6 (BC-B.6).

BC-B.2.3

An Islamic bank licensee must have in place appropriate safeguards against occurrences of behaviour that constitutes a lack of due care and diligence amounting to culpable negligence. These safeguards include appropriate staff training. Refer to Principle 3 (BC-B.3).

BC-B.2.4

An Islamic bank licensee offering Shari'a-compliant financing must exercise due diligence in making such financing available to customers, in the interests of both its fund providers and its customers. It is not acceptable business conduct for an Islamic bank licensee to be lax in applying criteria of creditworthiness, or relying only on collateral to mitigate credit losses, especially in cases where the Islamic bank licensee exercising its rights over the collateral would inflict hardship on the debtor.

BC-B.2.5

An Islamic bank licensee should endeavour to take all reasonable steps to assist the debtor.

BC-B.2.5.A

An example of assisting debtors is by restructuring the financing, prior to exercising the Islamic bank licensee's rights over the collateral.

BC-B.2.6

An Islamic bank licensee must balance the interests of its various stakeholders, which may include IAH as well as debtors.

BC-B.2.7

An Islamic bank licensee must exercise due diligence in the placement of IAH s money to fund financing facilities or investments, and in any other activities where a proper evaluation of risks, with the collection and analysis of the information necessary for this purpose, is called for.

BC-B.3.1

An Islamic bank licensee must ensure that it has in place the necessary systems and procedures, and that its employees have the necessary knowledge and skills, to comply with this Module and other CBB requirements in Volume 2 Rulebook.

BC-B.3.2

This principle requires that the board of directors, senior management, staff and representatives (such as agents) of an Islamic bank licensee must be capable of discharging their duties competently. The required capabilities must include having an understanding of the rules and principles of Shari'a that is appropriate to their responsibilities, including Shari'a-compliant characteristics of the financial products and services offered by the Islamic bank licensee.

BC-B.3.3

Capabilities may relate to designing products, to selling and distributing the products, or to the competencies necessary for successfully carrying out the business activities of the Islamic bank licensee, such as risk management, including asset-liability and liquidity management and the placement and management of funds. Lack of the necessary capabilities may result in flawed products, defective contracts and other paperwork, bad credit decisions, poor and costly underwriting decisions, and products that do not meet legal or regulatory requirements. These shortcomings can in turn result in operating losses or underwriting deficits, and products being mis-sold.

BC-B.3.4

An Islamic bank licensee must ensure that the persons entrusted to deal on behalf of the Islamic bank licensee are equipped with an appropriate level of knowledge of the Shari'a-compliant characteristics of the financial products and services offered by the Islamic bank licensee. Having staff with the necessary capabilities is key to avoiding excessive levels of operational risk in banking.

BC-B.3.5

Staff training and development are most important in fostering the required capabilities and must include an emphasis on the Code of Business Conduct that the Islamic bank licensee has developed, which should be consistent with these General Principles. Continuous training and development of awareness of employees at all levels are required in order to arrive at a clear framework of guidance that indicates what is acceptable conduct, as well as the sanctions to be applied to violators of the code.

BC-B.4.1

An Islamic bank licensee must take steps to ensure that it understands the nature and circumstances of its clients, so that it offers those products most suitable for their needs, as well as offering financing only for Shari'a-compliant projects. See Section BC-9.7.

BC-B.4.2

An Islamic bank licensee must ensure that its customers' businesses and the purpose of any financing provided are consistent with the Shari'a.

BC-B.4.3

An Islamic bank licensee must gauge the needs of their clients to ensure that the products or services rendered will reasonably meet those needs, and must ensure that any advice to customers is aimed at the customers' interests and based on adequate standards of research and analysis.

BC-B.4.4

Among the methods that are commonly used to gauge clients' needs are questionnaires and interviews with the clients, a written record being required. Questionnaires must be either completed or signed by the client, and where appropriate a summary of any interview must be signed by the client.

BC-B.4.5

It is the responsibility of the Islamic bank licensee to provide its customers full and timely disclosure of material facts relevant to the proposed transaction, their rights and obligations before signing any documents, to avoid any conflicts in the future.

BC-B.4.6

For example, if a client considering a savings or investment product, or a home purchase product, chooses not to provide all the information requested, the client must be cautioned that the Islamic bank licensee may not be able to give suitable advice without complete information and the client might risk making payments or entering into financial commitments which may not be appropriate to his or her needs or ability to pay. In this context, the principle of due diligence also applies to any such information seeking.

BC-B.5.1

An Islamic bank licensee must provide clear and truthful information both in any public document issued and to its actual and prospective clients, both during the sales process and in subsequent communications and reports. See Sections BC-9.5, BC-9.6, BC-9.8 and BC-9.10.

BC-B.5.2

An Islamic bank licensee must ensure that every advertisement is designed to disclose all relevant information to the subject matter.

BC-B.5.3

This principle is concerned with transparency in dealings with clients and prospective clients. In conjunction with Principle 1 (BC-B.1 Truthfulness, Honesty and Fairness), an Islamic bank licensee is required to provide appropriate and clear information to all clients and prospective clients regarding its products and services and the rights, obligations and risks involved to make informed decisions. This requirement also applies to information to clients and prospective clients concerning the Shari'a compliance of products and services.

BC-B.5.4

An Islamic bank licensee must maintain fair treatment of customers through the lifetime of the customer relationships, and ensure that customers are kept informed of important events.

BC-B.5.5

An example of achieving fairness through transparent business dealing from the Shari'a perspective is in the requirement that for a Murabaha contract to be valid, the seller has to disclose the original cost (including any discounts received) and the profit margin/mark-up.

BC-B.5.6

The use of 'small print' to make potentially important information less visible is not compatible with good business conduct, and must be avoided. Likewise, there should be no 'hidden costs' in financing products, such as commissions or agency fees that are not disclosed to the client.

BC-B.5.7

All commission and similar arrangements must be fully disclosed to the subject clients. In selecting a product for recommendation to a client, the overriding criterion must be the benefits to the client and not the attractiveness of the commission to the Islamic bank licensee or its representative. Refer to (BC-4.2) and (BC-9.8).

BC-B.5.8

When introducing new, enhanced, supplementary or replacement services and/or products with cost or potential liability in the future, Islamic bank licensees must provide customers with full particulars of the change at least thirty calendar days prior to the date the change takes effect, and must obtain prior-written consent from each customer. Such notice is to enable the customer to decide whether to accept the new terms or terminate the agreement.

BC-B.5.9

The use by an Islamic bank licensee or its representatives of 'negative or hard selling' techniques intended to push a client into an agreement without having properly evaluated the benefits and costs is not consistent with good business conduct.

BC-B.5.10

Negative selling occurs when a bank provides unordered services/products to a customer and then bills the customer. Often, the supply is accompanied by a form of notice instructing the customer that if the offer is not rejected within a certain time, the bank will send an invoice or debit an existing account or line of credit.

BC-B.5.11

'Hard selling' has been defined as applying psychological pressure (by appealing to someone's fears, greed or vanity) to persuade the prospect to make a quick purchase decision.

BC-B.5.12

Given the complexity of many financial products, Islamic bank licensees should give their customers a 'cooling off period' so as to have ample time to evaluate the benefits and costs of a product before finally committing themselves. This guidance applies to long term commitments, such as investments and mortgage financing, provided that it is not sensitive to daily fluctuations.

BC-B.5.12A

The only instance where a 'cooling off period' may be waived is when the Islamic bank licensee has received written confirmation from the customer that he/she wishes to waive his/her right to the 'cooling off period'.

BC-B.5.13

The principle of the 'cooling off period' is that the customer enters into a non-binding commitment to enter into a contract which becomes binding (i.e. the contract is concluded) only after a specified period has elapsed and provided the customer has not indicated otherwise.

BC-B.6.1

An Islamic bank licensee must recognise the conflicts of interest between itself and its clients that arise from the type of products it offers, and either avoid them, or disclose and manage them, bearing in mind its fiduciary duties to investment account holders (IAH) as well as shareholders. See Section BC-9.12.

BC-B.6.2

In addressing the issue of conflicts of interest, this principle stresses the importance of Islamic bank licensees doing their best to avoid conflicts of interest, and when they cannot be avoided, the need to ensure that stakeholders are fairly treated. This principle recognises that conflicts of interest should be managed, and that proper management to ensure fair treatment of stakeholders may require disclosure of certain facts or information, internal rules of confidentiality, or other appropriate methods or combinations of methods. Conflicts of interest may arise in fund management which requires proper management so as to achieve honesty and fairness in accordance with Principle 1 (BC-B.1).

BC-B.6.3

In Islamic bank licensees, conflicts of duty may occur since their management is required to act in the best interests of two categories of stakeholders who may have differing interests, such as shareholders and IAH. Hence, conflicts of interest between two categories of stakeholders are translated into conflicts of duty for the board of directors and management of the Islamic bank licensee. In this connection, the fiduciary duties of an Islamic bank licensee to stakeholders, including IAH, are crucial.

BC-B.6.4

Good business practice is linked to good governance, particularly with regard to the proper management of conflicts of interest and of duty. The existence of such conflicts must not be hidden, but Islamic bank licensees must be transparent about them while making clear what mechanisms are in place to manage them properly.

BC-B.6.5

Islamic bank licensees must ensure that their systems of remuneration and compensation do not provide perverse incentives to their management, staff, agents or other representatives that could lead to conflicts of interest.

BC-B.7.1

An Islamic bank licensee must be able to demonstrate that its operations are governed by an effective system of Shari'a governance and that it conducts its business in a socially responsible manner.

BC-B.7.2

An Islamic bank licensee must comply with all applicable legal and regulatory requirements and Shari'a requirements.

BC-B.7.3

An Islamic bank licensee must employ a highly competent head of Shari'a review (Refer to Principle 3, BC-B.3: Capabilities) having a sufficient level of authority to make compliance with all applicable legal, regulatory and Shari'a requirements a key management policy that is applied effectively in practice. Banks must also refer to Module LR (Licensing Requirements), LR-1A for requirements on the appointment of head of Shari'a review and Appendix TC-1 in Module TC (Training and Competency).