KUALA LUMPUR: Supervisors or regulators must recognise the unique risks in Islamic banking as mitigators used in conventional banking may not be applicable to the former.
Bank Negara assistant governor Nor Shamsiah Yunus said collaboration was needed among industry players and global players to understand the different concepts in Islamic banking.
“Supervisors or regulators must know the risks such as Shariah risk, asset price risk, rate of return risk, displaced commercial risk and equity investment risk in Islamic banking,” she said during a talk on “Essential Elements for Effective Supervision of Islamic Banking Institution” on Thursday.
The session was held at the sidelines of the Global Islamic Finance Forum organised by Bank Negara.
Nor Shamsiah said cross border transactions involving global players must be “delicately” handled due to varying Shariah interpretation.
She also said there should be regular dialogue between supervisors and authorities in the various countries where these transactions were conducted.
“This will help reduce the overlapping of supervisory functions and ensure that the responsibilities of the different governing parties are clearer,” she said, adding that the relationship between the investor and the Islamic bank was also different than that of a conventional bank.
“The relationship between the investors and Islamic banks are of investor and entrepreneur rather than creditor and debtor and the duty of Islamic banks is to ensure clearer disclosure,” she said.
Nor Shamsiah said the parties must be more willing to share information more frequently.
She added that banks must also be savvy to select relevant information in cross border transactions without compromising data sensitivity and confidentiality.
While market forces play an important role in ensuring the competitiveness of Islamic banking, regulators and supervisors should not completely rely on it.
“All parties, including players, customers and investors along with rating agencies, must be have consistent understanding of market signals and react accordingly,” she said.