IMF Executive Board Adopts Decisions to Formally Recognize the Core Principles for Islamic Finance Regulation (CPIFR) for Banking

IMF News, May 24, 2018

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Canonical URL: IMF Executive Board Adopts Decisions to Formally Recognize the Core Principles for Islamic Finance Regulation (CPIFR) for Banking

Press Release No. 18/193
Date: May 24, 2018
Issued by: IMF Communications Department, MEDIA RELATIONS
Press Officer: Phone: +1 202 623-7100 Email: MEDIA@IMF.org
The Executive Board endorsed a proposal on the use of the Core Principles for Islamic Finance Regulation (CPIFR), developed by the Islamic Financial Services Board (IFSB) with participation of the Secretariat of the Basel Committee on Banking Supervision.
The CPIFR are intended to provide a set of core principles for the regulation and supervision of the Islamic banking industry and are designed to take into consideration the specificities of Islamic banks, as explained in the IMF Staff Paper, “The Core Principles for Islamic Finance Regulations and Assessment Methodology.”

Islamic finance sector continues to grow and evolve in size and complexity, with Islamic banking offered in more than 60 countries.
Growth of Islamic finance presents opportunities to:
- Strengthen financial inclusion.
- Deepen financial markets.
- Mobilize funding for development by offering new modes of finance and attracting “unbanked” populations.
Islamic banks (IB) undertake distinct operations with risk profiles and balance sheet structures that differ in important respects from conventional banks, with associated financial stability implications.
Regulation and supervision should reflect the nature of risks to which IB are exposed and the financial infrastructure needed for effective regulation and supervision, which requires additional or different regulation and supervisory practices.

The CPIFR and their associated methodology will be applied in financial sector assessments undertaken in fully Islamic banking systems.
In dual banking systems where Islamic banking is systemically significant, CPIFR will be used as a supplement to the Basel Core Principles for Effective Banking Supervision (BCP).
Directors broadly endorsed the use of the CPIFR and their assessment methodology for Reports on the Observance of Standards and Codes (ROSCs) initiated after January 1, 2019 regarding the effectiveness of regulation and supervision of IB.
Where a jurisdiction has both significant Islamic banking and significant conventional banking sectors, the Fund will assess both sectors at the same time using the CPIFR and BCP standards and assessment methodologies respectively, to reveal linkages between IB and their conventional counterparts and implications for financial stability.

The CPIFR standard and assessment methodology will be used in dual banking systems where IB has a significant market share (of 15 percent or more).
For countries where the IB system is below the 15 percent threshold:
- Directors welcomed staff’s proposal that adoption of the CPIFR could be supported through technical assistance to help nascent IB financial systems develop in a safe and sustainable way.
- Islamic finance in these countries plays a complex developmental role, including in meeting the United Nations’ sustainable development financing goals by providing access to investment and equity finance and inclusion for large parts of their unbanked populations.
- Directors encouraged the Fund to continue developing alternative criteria to determine the significance of the IB sector in a country, beyond the simple market share in the financial market.

Directors called for stronger efforts to strengthen regulatory and supervisory frameworks to take into consideration the specificities of IB to promote financial stability and sound development, particularly where IB have become systemically important.
Directors saw merit in maintaining close cooperation between the IFSB and the BCBS to ensure their respective standards remain consistent.
Directors emphasized the importance of close cooperation between the Fund and relevant key institutions on IB issues and saw merit in a clear division of labor between standard-setters and international organizations to avoid duplication of efforts.
A number of Directors saw merit in future work on developing comprehensive standards for Islamic financial services.

International Monetary Fund — Press Release No. 18/193, May 24, 2018