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RM-4.3.3

Islamic bank licensees must establish an appropriate sound and comprehensive market risk management process and information system, which (among others) comprise:

(a) A conceptual framework to assist in identifying underlying market risks;
(b) Guidelines governing risk taking activities in different portfolios of assets financed by investments accounts and portfolios of Collective Investment Undertakings and their market risk limits;
(c) Appropriate frameworks for pricing, valuation and income recognition; and
(d) A strong MIS for controlling, monitoring and reporting market risk exposure and performance to appropriate levels of senior management.

Given that all the required measures are in place (e.g. pricing, valuation and income recognition frameworks, strong MIS for managing exposures, etc.), the applicability of any market risk management framework that has been developed must be assessed taking into account consequential business and reputation risks.

January 2013