“The financial crisis has threatened the stability of the global banking system and central banks across the world were forced to take unprecedented measures to stabilize the situation and to provide safe operating environment for the financial industry. Financial regulators will still have to deal with many issues to ensure that the new regulations provide a foundation for financial stability and sound operational practices and ensuring fairness and transparency,” Rasheed M. Al-Maraj, Governor, Central Bank of Bahrain on Tuesday told the participants of the 3rd Annual Euromoney Conference being held in Manama.
“This focus will continue and it will include further fine-tuning to the existing banking rules and regulations as the challenging economic and financial conditions evolve,” Al Maraj said.
“We hope that the bitter experience which the world has undergone shall bring about the adoption of new practices that emphasise integrity and social responsibility for all banking transactions, including improving corporate governance and risk management practices.
“The CBB has sought to improve the regulatory framework for the financial services industry in Bahrain, including implementing international standards. We seek to implement best international practices, especially those related to governance and risk management. In this respect, the CBB has issued many updates to the Rulebooks.
“To maintain and improve the stability in the banking sector, CBB has encouraged bank consolidation, which to date has resulted in the merger of ten banks, creating stronger and well capitalized banks.
“The next subject that I wish to share with you is the Central Bank strategy for Islamic finance. It consists of four parts; consolidation – which I have talked about already; regulations; human capital development; and enhancement of market practices.
With regard to regulations, the governor said that a new solvency framework for the Takaful industry; new Sharia governance rules to complement AAOIFI standards; business and market conduct rules to provide protection to investment account holders and depositors; rules designed to enhance the independence of risk managers, compliance officers, internal auditors, internal Sharia reviewers and anti-money laundering officers and new rules for offering of securities to address the technical aspects of Sharia compliance for public and private securities.
“On the subject of human capital development, the CBB, the Waqf Fund and the BIBF are working together to provide training for the Islamic finance industry.”
In line with this, he added, the CBB has issued new modules on training and competency requirements for senior positions in licensees, including board members. These new rules require an increased level of knowledge, skills, and experience for those who hold senior positions.
“The Waqf Fund continues to provide financial support for training and development programmes. The BIBF continues to offer highly respected academic and professional training.
“The CBB has advised all Islamic banks to seek rating; the Waqf Fund, in consultation with the CBB and the industry, has started to review practices on internal Sharia review, internal Sharia audit and, most importantly, external Sharia audit to improve consistency and transparency; the CBB requires full compliance to all Sharia principles, and to fully disclose assets and liabilities which are not Sharia compliant and the CBB has urged all Islamic banks to use the standard documentation issued by IIFM on unrestricted wakalah transactions as a replacement for commodity murabaha.
“Our commitment to develop Islamic finance remains strong and we will continue to work with the industry to ensure further progress. In addition to this, our framework for full implementation of Basel III continues apace, including the draft revised Capital Adequacy Module. Underpinning all of this are our recommendations for improving the corporate governance culture within our licensees.
“We have a challenging time ahead of us and by building strong regulatory framework based on international standards and best practices, and working with our partners in the financial services sector, we can demonstrate our commitment to maintaining a safe working environment,” the CBB Governor said.