CA-5.1.6
Policies and procedures must, at a minimum, address the following:
(a) The activities the Islamic bank licensee considers to be trading and as constituting part of the trading book for regulatory capital purposes;
(b) The extent to which an exposure can be marked-to-market daily by reference to an active, liquid two-way market;
(c) For exposures that are marked-to-model, the extent to which the Islamic bank licensee can:
(i) Identify the material risks of the exposure;
(ii) Hedge (Sharia compliant hedging) the material risks of the exposure and the extent to which hedging instruments would have an active, liquid two-way market; and
(iii) Derive reliable estimates for the key assumptions and parameters used in the model;
(d) The extent to which the Islamic bank licensee can and is required to generate valuations for the exposure that can be validated by external parties in a consistent manner;
(e) The extent to which legal restrictions or other operational requirements would impede the Islamic bank licensee's ability to effect an immediate liquidation of the exposure;
(f) The extent to which the Islamic bank licensee is required to, and can, actively risk manage the exposure within its trading operations; and
(g) The criteria for and the extent to which the Islamic bank licensee may transfer risk or exposures between the banking and the trading books.
The list above is not intended to provide a series of tests that a product or group of related products must pass to be eligible for inclusion in the trading book. Rather, the list provides a minimum set of key points that must be addressed by the policies and procedures for overall management of an
January 2015