Dec 22 Kuwait's central bank has issued new
governance rules for Islamic banks, including requirements for
external sharia audits, as regulators seek more transparency and
accountability in the sector.
Regulatory scrutiny over Islamic banks has been building as
they now hold around a quarter of total banking assets in the
Gulf, while in Kuwait that figure stands at around 40 percent.
Kuwait's central bank said the rules published this week aim
to increase customer confidence in Islamic banking by
strengthening both internal and external oversight.
This follows similar steps by Bahrain which proposed new
requirements in September for its Islamic banks, including
external sharia audits.
The central bank directive, which must be fully implemented
by Jan. 2018, provides guidance covering independence of sharia
boards as well as fit and proper criteria for scholars.
Islamic banks have traditionally used in-house boards of
scholars to determine whether religious principles are being
obeyed, a self-policing approach often criticised for leaving
banks open to conflicts of interest.
Under the rules, scholars can only serve on the sharia
boards of three Islamic banks in Kuwait or fewer and they must
have a minimum of five years relevant industry experience.
There are no specific term limits for scholars, but they
must attend a minimum number of sharia board meetings during a
given year or risk losing their eligibility.
The central bank also wants to encourage consistency and
timeliness of rulings from sharia boards, which must provide an
annual report on their activities.
But is also wants to shield them from undue influence:
sharia board rulings will be binding on banks' managements,
according to the rules.
(Reporting by Bernardo Vizcaino; Editing by Eric Meijer)