INTRODUCTION

Why are we issuing this Consultation Paper (CP)?

The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on proposed AIFC Shari’ah Governance Framework.

Who should read this CP?

The proposals in this paper will be of interest to current and potential AIFC Participants involved in carrying on or holding themselves out as carrying on a Financial Service in a Shari’ah-compliant manner.

Terminology

Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in AIFC Glossary. Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.

What are the next steps?

We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the email specified below. When sending your comments by email, please use “Consultation Paper AFSA-PSRD-CSP-2026-0003” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by AFSA.

The deadline for providing comments on the proposed framework is 15 September 2026. Once we receive your comments, we shall consider if any refinements are required to this proposal.

Following the public consultation, we may proceed with making relevant changes to the AIFC Acts as appropriate to reflect the points raised in the consultation. You should not act on the proposals until the framework is enacted.

AFSA prefers to receive comments by email at consultation@afsa.kz.

Structure of this CP

Part I – Background

Part II – Proposals

Part III – Public Consultation Questions

Annex 1 – Draft AIFC Shari’ah Governance Rules

Annex 2 – Consequential Amendments to the AIFC Rules

PART I – BACKGROUND

1.          The development of Islamic finance is one of the strategic objectives of the AIFC. In support of this objective, the AIFC has established a regulatory framework designed to facilitate the provision of Shari’ah-compliant financial services across various areas, including banking, financing, investment, capital markets, and insurance while ensuring alignment with internationally recognised standards.

2.          The AIFC framework has supported the development of Shari’ah-compliant financial activities within the AIFC. A number of Islamic banks, Islamic financing companies, and other Shari’ah-compliant institutions have been established within the AIFC, while Islamic securities and other Shari’ah-compliant financial instruments have been issued and listed on the Astana International Exchange.

3.          Islamic finance activities are incorporated into the broader regulatory framework of the AIFC through specific rules applicable to Islamic banks, Islamic finance companies, takaful operators, and Islamic investment instruments. These rules address the distinctive features of Islamic finance, including the prohibition of activities that are not compliant with Shari’ah principles, requirements for Shari’ah-compliant contractual structures (such as murabahah, ijarah, musharakah, and sukuk), and the mandatory establishment of a Shari’ah governance framework at the corporate level.

4.          As the Islamic finance ecosystem within the AIFC continues to mature, the AFSA considers it appropriate to further enhance the regulatory framework through the introduction of the comprehensive Shari’ah Governance Framework which includes the dedicated AIFC Shari’ah Governance Rules, together with consequential amendments to the AIFC General Rules, AIFC Glossary and AIFC Islamic Finance Rules.

PART II – PROPOSALS

Policy issue

5.          While the AIFC has established a regulatory framework governing Islamic financial activities, the current regime does not yet provide a consolidated and detailed framework governing Shari’ah governance functions across Islamic financial institutions and Islamic windows.

6.          The absence of a consolidated and detailed Shari’ah governance framework may lead to inconsistencies in the interpretation and application of Shari’ah principles, potential operational risks, and reputational concerns for the jurisdiction. A clear regulatory framework is therefore required to ensure consistency, transparency, and credibility of Shari’ah-compliant financial services.

7.          Existing Islamic Finance Rules require institutions to appoint Shari’ah Supervisory Boards (SSBs) and conduct internal Shari’ah reviews; however, the regulatory framework does not currently provide:

·        detailed requirements regarding the structure and independence of Shari’ah governance functions;

·        clear reporting lines between Shari’ah governance functions and the Governing Body;

·        a standardised framework for Shari’ah compliance monitoring and internal Shari’ah audit;

·        regulatory expectations regarding external Shari’ah assurance; and

·        a consistent framework for managing Shari’ah non-compliance events.

8.          Internationally, major Islamic finance jurisdictions have introduced dedicated Shari’ah governance frameworks to regulate the internal governance structures of Islamic financial institutions.

For example:

·            Malaysia has implemented a comprehensive Shari’ah Governance Policy issued by Bank Negara Malaysia.

·            Bahrain regulates Shari’ah governance through the Central Bank of Bahrain Rulebook, which incorporates AAOIFI Governance Standards (GS).

·            Pakistan has adopted a detailed Shari’ah Governance Framework issued by the State Bank of Pakistan.

·            The UAE introduced a Higher Shari’ah Authority and national Shari’ah GS for Islamic financial institutions.

9.          These frameworks demonstrate the growing importance of robust Shari’ah governance structures as a key element of Islamic finance regulation.

Policy proposal

10.   It is proposed to introduce the AIFC Shari’ah Governance Rules, establishing a comprehensive governance structure encompassing the SSB, Shari’ah Compliance Function, Internal Shari’ah Audit, External Shari’ah Audit, and the Shari’ah Board Secretariat. Together, these components are designed to ensure effective oversight, operational independence, transparency, and accountability in the implementation of Shari’ah principles across all Islamic financial services and products offered within the AIFC.

11.   The proposed Rules follow the principle of proportionality, recognising that Islamic financial institutions operating within the AIFC vary significantly in terms of size, complexity, and scope of activities. Accordingly, the application of certain requirements may be subject to transitional arrangements, waivers, or outsourcing options where appropriate, while ensuring that the core principles of Shari’ah governance are maintained.

Scope of application

12.   These proposed Rules apply every Person who carries on, or holds itself out as carrying on a Financial Service in a Shari’ah-compliant manner; and a Fund Manager of a Domestic Fund which is operated or held out as being operated as an Islamic Fund, and where appointed, its Trustee; and an Authorised Firm which carries on, or holds itself out as carrying on, a Regulated Activity in a Shari’ah compliant manner.

13.   The proposed Rules expressly reference the following AAOIFI GS:

GS 1: Shari’ah Governance Framework.

GS 8: Central Shari’ah Board.

GS 9: Shari’ah Compliance Function.

GS 11: Internal Shari’ah Audit.

GS 18: Shari’ah Decision-Making Process.

GS 19: SSB Appointment and Composition.

GS 20: SSB Functions and Operations.

GS 21: SSB Review and Report.

Shari’ah Governance Principles

14.       The proposed Rules set out the core Shari’ah Governance Principles that Authorised Firms are required to implement in their operations, including:

·        Accountability for Shari’ah compliance at all levels of the organisation.

·        Independence in Shari’ah decision-making.

·        Transparency of processes, rulings, and disclosures.

·        Effective internal controls to prevent Shari’ah non-compliance.

·        Proper documentation of all Shari’ah opinions, resolutions, and approvals.

·        Timely identification, reporting, and remediation of any instances of Shari’ah non-compliance.

15.       To ensure the effective implementation of these principles, it is proposed that Authorised Firms establish an internal Shari’ah governance structure comprising, at a minimum, the following components:

·        A Shari’ah Supervisory Board.

·        A Shari’ah Compliance Function.

·        An Internal Shari’ah Audit Function.

·        An External Shari’ah Audit.

·        A Shari’ah Board Secretariat Function.

Shari’ah Supervisory Board (SSB)

16.       The SSB must be independent, competent, empowered, and adequately resourced, with its members appointed by the Governing Body. The proposed Rules reinforce this independence through several complementary safeguards: SSB Members must not hold executive positions within the Firm; individuals responsible for product development, sales, or revenue generation may not serve as SSB Members or SSB Advisors; SSB Members and SSB Advisors must be free from conflicts of interest, with any conflict disclosed to the AFSA immediately; and where the SSB disagrees with the Firm's senior management, Governing Body, or shareholders on Islamic finance matters, the opinion of the SSB prevails, and SSB Members may not be dismissed on account of such disagreement.

17.       An Authorised Firm, pursuant to the proposed Rules, must establish and maintain an independent and adequately resourced SSB appointed by the Governing Body and governed by an SSB Charter and individual appointment letters. These documents must define the SSB’s mandate, remuneration, tenure, meeting procedures, quorum and decision-making processes, record-keeping, and reporting lines. The SSB must meet at least four times annually, and at least one joint meeting with the Governing Body must be held each year. Outsourcing of the SSB is permitted, provided that such an arrangement is approved by the AFSA and is in full compliance with these Shari’ah Governance Rules.

18.       The core functions of the SSB include:

·        Supervising the Firm’s activities for compliance with Shari’ah Principles and Rules.

·        Reviewing and approving Islamic financial products, contracts, and structures.

·        Issuing binding Shari’ah opinions (fatwas, rulings, and resolutions).

·        Overseeing the Shari’ah Compliance and Internal Shari’ah Audit functions.

·        Reviewing Shari’ah non-compliance events and recommending remedial actions.

·        Endorsing the annual Shari’ah compliance report.

·        Issuing the annual Shari’ah Supervisory Report.

·        Disclosing the total remuneration of the SSB.

·        Formulating, elaborating, and implementing a 5-year strategic plan of the SSB.

Shari’ah Compliance Function

19.       A Firm must establish and maintain an independent and adequately resourced Shari’ah Compliance Function responsible for monitoring transactions and operational processes, reviewing new products, marketing materials and client documentation, supporting the SSB through technical analysis and documentation, and keeping a register of Shari’ah non-compliance events. The Function shall also perform any additional responsibilities in accordance with the AAOIFI GS No. 9 “Shari’ah Compliance Function” or as delegated by the SSB.

20.       The Shari’ah Compliance Function must report directly to the SSB, with a dotted-line reporting relationship to the CEO on Shari’ah-related matters. Subject to the size and complexity of the Firm, the Function may also oversee the Shari’ah Board Secretariat.

21.       The Function shall be headed by a Shari’ah Compliance Officer (SCO), who must be an Approved Individual of the Firm and whose appointment and removal are subject to SSB approval and the AFSA’s approval. The SCO must possess appropriate expertise in Islamic finance and Shari’ah Principles and Rules, a sound understanding of the regulatory environment, and relevant academic and professional qualifications, including at least a bachelor’s degree (or its equivalent) in Shari’ah or Islamic finance (or a related discipline), a recognised professional certification such as the Certified Shari’ah Advisor and Auditor (CSAA), a minimum of three years of experience, and residency in the Republic of Kazakhstan is recommended.

Internal Shari’ah Audit

22.       An Authorised Firm must establish and maintain an independent and adequately resourced Internal Shari’ah Audit Function responsible for reviewing the implementation and execution of Shari’ah-compliant products, verifying the proper implementation of rulings issued by the SSB, identifying and reporting Shari’ah non-compliance events, and recommending corrective actions.

23.       Internal Shari’ah audits must be conducted at least annually, or more frequently depending on the Firm’s size and complexity. Audit reports shall be submitted to the SSB, the Governing Body, and Senior Management, and provided to the AFSA upon request. The Function must apply a documented audit plan and risk-based methodology and may be established as a separate department. The AFSA may grant waivers, transitional arrangements, or permit outsourcing of certain functions, particularly for firms conducting Islamic finance activities, Islamic windows, or Shari’ah-compliant investment arrangements, provided that the independence and effectiveness of the Function are not compromised.

24.       The Internal Shari’ah Audit Function shall be headed by an Internal Shari’ah Auditor, who must be a Designated Individual of the Firm and whose appointment and removal require approval of the Governing Body. The Internal Shari’ah Auditor must possess appropriate expertise in Islamic finance and Shari’ah Principles and Rules, relevant professional qualifications such as the CSAA issued by the AAOIFI or the Certified Islamic Specialist in Shari’ah Auditing (CISSA) issued by the General Council for Islamic Banks and Financial Institutions, at least three years of relevant experience, and an appropriate qualification in Shari’ah, Islamic finance, auditing, or a related discipline.

External Shari’ah Audit

25.       An Authorised Firm shall be subject to an External Shari’ah Audit conducted in accordance with Auditing Standard (AS) No. 6 “External Shari’ah Audit” issued by the AAOIFI. The implementation of this requirement shall be phased in over a period of up to 5 years from the proposed Rules’ commencement, taking into account market readiness and the availability of qualified Shari’ah audit professionals.

26.       During the transitional period, the scope and frequency of External Shari’ah Audit engagements shall be determined by the Governing Body, having regard to the Firm’s risk profile and the complexity of its activities.

27.       Upon completion of the audit, the External Shari’ah Auditor shall issue an independent Shari’ah Assurance Report to the SSB and the Governing Body, which shall be made available to the AFSA upon request.

Shari’ah Board Secretariat Function

28.       All Shari’ah governance functions must have clear reporting lines, independence, and adequate resources in accordance with AAOIFI Standards, and the Shari’ah Board Secretariat Function may operate either as a standalone unit or under the Shari’ah Compliance Function, depending on the Firm’s size, providing administrative, technical, and procedural support to the SSB.

Recordkeeping and Conflict of Interest

29.       The proposed Rules strengthen recordkeeping and conflict-of-interest requirements by mandating a structured retention of key Shari’ah governance documents, ensuring secure storage, accessibility, reproducibility in English upon the AFSA request, and protection from unauthorised alteration.

30.       Authorised Firms must implement robust conflict-of-interest controls, ensure the independence of the SSB, Internal Shari’ah Audit, and Shari’ah Compliance functions, prohibit revenue-generating staff from serving in Shari’ah oversight roles, and prevent conflicted persons from participating in relevant decisions.

31.       Additionally, Authorised Firms must maintain comprehensive training programmes to ensure ongoing competence of staff, Shari’iah Compliance Officer, Internal Shari’ah Auditor, SSB Members, the Governing Body, and Senior Management in Shari’ah governance and Islamic finance.

Consequential Amendments

32.       To give effect to the proposed Shari'ah Governance Rules, consequential amendments are proposed to the AIFC General Rules (GEN), the AIFC Glossary (GLO), and the AIFC Islamic Finance Rules (IFR), set out in Annex 2 to this Consultation Paper.

33.       The amendments to GEN require an Authorised Firm conducting Islamic Financial Business to appoint a Shari'ah Compliance Officer and an Internal Shari'ah Auditor as Controlled and Designated Functions respectively.

34.       The amendments to the AIFC Glossary introduce the defined terms underpinning the new framework, including Audit Committee, External Shari'ah Audit, Internal Shari'ah Audit Function, Internal Shari'ah Auditor, Shari'ah Compliance Function, Shari'ah Non-Compliance Event, Shari'ah Non-Compliance Risk, Shari'ah Principles and Rules, and Shari'ah Supervisory Board (SSB).

35.       The amendments to IFR remove the provisions on the Shari'ah Supervisory Board and internal and external Shari'ah reviews, which are consolidated into, and superseded by, the proposed Shari'ah Governance Rules, thereby ensuring that Shari'ah governance requirements are regulated within a single comprehensive framework and avoiding duplication or inconsistency across the AIFC Acts.

PART III – PUBLIC CONSULTATION QUESTIONS

Question 1.  Do you have any comments on the proposed AIFC Shari’ah Governance Rules, including the proposed requirements relating to Shari’ah Supervisory Boards, Shari’ah Compliance Functions, Internal Shari’ah Audit, External Shari’ah Audit, and Shari’ah Board Secretariat arrangements? Please identify any provisions that may require clarification, adjustment, or an alternative approach, and provide supporting rationale.

Question 2. Are there any aspects of Shari'ah governance not addressed in the proposed Rules that you consider should be covered, or alternative approaches the AFSA should consider?

Question 3. In your view, what would be a reasonable implementation timeline for these Rules? Please explain the basis for your suggested timeframe. Please provide the basis for your suggested timeframe, including any practical challenges, resource constraints, or other factors that the AFSA should consider.

Annex 1 – Draft AIFC Shari’ah Governance Rules

CONTENTS

PART 1: GENERAL. 3

1.     Application. 3

2.     Purpose. 3

3.     Definitions. 3

4.     Shari’ah Governance Framework and Standards. 5

5.     Shari’ah Governance Structure. 5

PART 2: OPERATIONAL. 6

6.     Shari’ah Supervisory Board (SSB) 6

7.     Internal Shari’ah Audit Function. 10

8.     Shari’ah Compliance Function. 11

9.     External Shari’ah Audit 13

PART 3: ADMINISTRATIVE. 13

10.       Reporting and Disclosure Requirements. 13

11.       Record-Keeping. 14

12.       Conflicts of Interest 14

13.       Independence Requirements. 15

14.       Training and Competence. 15

PART 1: GENERAL

1.          Application

(1)     These Rules apply to:

 

(a)      every Person who carries on, or holds itself out as carrying on a Financial Service in a Shari’ah-compliant manner; and

(b)      a Fund Manager of a Domestic Fund which is operated or held out as being operated as an Islamic Fund, and where appointed, its Trustee; and

(c)       an Authorised Firm which carries on, or holds itself out as carrying on, a Regulated Activity in a Shari’ah compliant manner.

2.          Purpose

(1)        These Rules establish the mandatory Shari’ah governance framework to ensure compliance with Shari’ah Principles and Rules, maintenance of sound governance, and implementation of effective internal controls that safeguard the integrity, transparency, and stability of the Islamic financial sector under AFSA supervision.

(2)        The Rules set out the minimum mandatory governance, oversight, reporting, and audit requirements, including the establishment and functioning of Shari’ah Supervisory Board (SSB), Shari’ah Compliance Function, Internal Shari’ah Audit Function and External Shari’ah Audit.

3.          Definitions

(1)        Words and expressions used in these Rules and interpretative provisions applying to these Rules are set out in the Glossary unless indicated otherwise.

(2)        Where definitions in the Rules conflict with definitions in IFR, the IFR definitions prevail.

(3)        Shari’ah Principles and Rules mean the principles, standards, rules, and rulings relating to Islamic finance recognised or adopted under the laws, rules, and regulatory framework of the AIFC, including applicable AAOIFI standards, and relevant Shari’ah Supervisory Board rulings.

(4)        In these Rules, the terms “Shari’ah”, “Shari’ah compliance”, and “Shari’ah Principles and Rules” must be interpreted as having the same meaning and are used interchangeably.

(5)        For the purposes of the Rules, references to AAOIFI Governance Standards (GS) include, at minimum, the following standards:

(a)            GS 1: Shari’ah Governance Framework.

(b)            GS 8: Central Shari’ah Board.

(c)             GS 9: Shari’ah Compliance Function.

(d)            GS 11: Internal Shari’ah Audit.

(e)            GS 18: Shari’ah Decision-Making Process.

(f)              GS 19: SSB Appointment and Composition.

(g)            GS 20: SSB Functions and Operations.

(h)            GS 21: SSB Review and Report.

(6)        These standards are referenced for alignment purposes. Compliance with AAOIFI Governance Standards must apply only to the extent required by AIFC Acts.

(7)        References to AAOIFI Governance Standards in these Rules must be construed as references to the latest version of such standards as amended, updated, or replaced from time to time.

(8)        Where an Authorised Firm other than an Islamic Financial Institution conducts Islamic Financial Business as a part of its business operations (Islamic Window), the Rules apply in full to the Authorised Firm’s Islamic Window. The Authorised Firm must ensure in its internal policies and procedures effective segregation (which includes, at a minimum, separate personnel, segregated information technology systems, and segmental financial reporting), operational independence, and appropriate ring-fencing of the Islamic Window in accordance with Shari’ah governance requirements in a manner that enables full compliance with the Shari’ah governance requirements set out in these Rules, including, at a minimum:

(a)            Shari’ah oversight through a Shari’ah Supervisory Board; and

(b)            Shari’ah Compliance Function; and

(c)             Internal Shari’ah Audit Function; and

(d)            External Shari’ah Audit, where applicable; and

(e)            compliance with the Shari’ah governance, reporting, disclosure, and record-keeping requirements under these Rules.

(9)        An Authorised Firm must establish, maintain, and implement internal policies and procedures governing Shari’ah Non-Compliance Events and Shari’ah Non-Compliance Risks, which must be designed to ensure full compliance with the Shari’ah governance requirements set out in these Rules. Such policies and procedures must include, at a minimum:

(a)            the prompt identification, documentation and escalation of any Shari’ah Non-Compliance Events and Risks by the Shari’ah Compliance Function or other relevant officers of the Authorised Firm; and

(b)            appropriate mechanisms and procedures for remediation and purification, to be undertaken under the oversight and direction of the Shari’ah Supervisory Board (SSB); and

(c)             reporting to the AFSA, where required and subject to an assessment of risks materiality by the SSB; and

(d)            maintaining adequate records of Shari’ah Non‑Compliance Events, including identification, assessment, remediation, and purification.

4.          Shari’ah Governance Framework and Standards

(1)        An Authorised Firm must implement a Shari’ah governance framework that ensure:

(a)            accountability for Shari’ah compliance across all levels of the organisation.

(b)            independence of Shari’ah decision-making.

(c)             transparency of processes, rulings, and disclosures.

(d)            effective controls that prevent Shari’ah non-compliance.

(e)            proper documentation of all Shari’ah opinions and approvals.

(f)              timely identification, reporting and remediation of Shari’ah non-compliance.

(2)        The Governing Body (Board of Directors) of an Authorised Firm is ultimately responsible for ensuring the effectiveness of the Shari’ah governance framework. It is the responsibility of the Governing Body of a Firm to ensure the Shari’ah compliance of the Authorised Firm they manage and control.

(3)        An Authorised Firm must ensure that its Shari’ah governance arrangements are proportionate to the nature, scale, and complexity of its Islamic Financial Business.

(4)        An Authorised Firm’s Shari’ah governance framework, including the structure and functioning of the Shari’ah Supervisory Board, the Shari’ah Compliance Function, the Internal Shari’ah Audit, and External Shari’ah Audit, must be consistent with the AAOIFI Governance Standards (GS) and AAOIFI Auditing Standards (AS). Where these AAOIFI standards provide more detailed or stringent requirements, the Authorised Firm must ensure alignment with such requirements unless they conflict with AIFC Acts.

(5)        The AAOIFI Financial Accounting Standards (FAS) do not replace or supersede the IFRS requirements applicable in the AIFC. IFRS remains the primary accounting framework. The AAOIFI Financial Accounting Standards apply only to the extent that they introduce Shari’ah-related requirements relevant to Islamic Financial Business, or where no applicable IFRS standard exists.

5.          Shari’ah Governance Structure

(1)        An Authorised Firm must maintain the following minimum components:

(a)            Shari’ah Supervisory Board (SSB).

(b)            Shari’ah Board Secretariat Function.

(c)             Shari’ah Compliance Function.

(d)            Internal Shari’ah Audit.

(e)            External Shari’ah Audit.

(2)        All components of the Shari’ah governance structure listed above must have clear reporting lines (in accordance with AAOIFI Standards), independence and adequate resources. An Authorised Firm must ensure the Shari’ah Board Secretariat Function may operate as a standalone unit or under the Shari’ah Compliance Function, depending on the institution’s size. The Shari’ah Board Secretariat Function is responsible for administrative, technical, and procedural support to the SSB, including, but not limited to:

(a)            preparation and coordination of SSB meetings.

(b)            maintaining records of SSB resolutions, fatwas, and opinions.

(c)             coordination between the SSB, Shari’ah Compliance Function and Internal Shari’ah Audit.

(d)            monitoring follow-up actions arising from SSB decisions.

(e)            ensuring proper documentation and archiving of Shari’ah governance materials.

(3)        An Authorised Firm must ensure that individuals appointed as  Shari’ah Compliance Officer and Internal Shari’ah Auditor are AFSA-approved individuals and have due capacity in Shari’ah matters.

Guidance: To provide flexibility to Authorised Firms, AFSA may consider granting a waiver or modification to these requirements, depending on the size of the Authorised Firm; flexibility, temporary exemptions, or outsourcing arrangements for providing Islamic finance activities, Islamic windows, and institutions offering investments through Shari’ah sleeves for certain functions, due to the scarcity of relevant expertise.

(4)        The Internal Shari’ah Audit Function is an independent ex-post function that reviews transactions after execution and assesses the adequacy and effectiveness of intended controls for adherence to Shari’ah requirements, whereas the Shari’ah Compliance Function is an ex-ante function that reviews transactions before execution and is an ongoing process of monitoring the Authorised Firm’s overall activities and Shari'ah compliance environment.

PART 2: OPERATIONAL

6.          Shari’ah Supervisory Board (SSB) 

(1)        An Authorised Firm must establish and maintain an independent, competent, empowered and adequately resourced Shari’ah Supervisory Board (SSB). The Governing Body must appoint the members of the SSB.

(2)        The operation of the SSB must be governed by the Authorised Firm’s SSB charter and the appointment letters of its members.

(3)        The charter and the appointment lettersmust set out the SSB’s operating framework, including:
(a) the scope of duties and remuneration of the SSB members (b)terms and conditions of appointment, (c) meeting frequency, quorum and decision-making processes, (d) record-keeping requirements, and (e) reporting arrangements to the Governing Body.

(4)        The Governing Body and the SSB must meet at least once a year. The SSB must hold a minimum of 4 meetings per year.

(5)        An Authorised Firm may establish its Shari’ah Supervisory Board on an outsourced basis, provided that such an arrangement is approved by the AFSA and is in full compliance with these Rules.

(6)        The SSB must consist of at least 3 members (SSB Members) who are specialised jurists in Fiqh Al-Muamalat (Islamic commercial jurisprudence) and knowledgeable of Maqasid Al Shari’ah (the Noble Objectives of Shari’ah). An SSB Member must not hold membership on more than 3 SSB of Islamic banks, memberships in other jurisdiction subject to mandatory disclosure. The number of SSB Members must be odd.

(7)        The SSB Members must collectively have:

(a)            demonstrable expertise and competence in Fiqh Al-Muamalat (Islamic commercial jurisprudence); and

(b)            knowledge of contemporary Islamic finance structures; and

(c)             the ability to issue Shari’ah rulings and opinions; and

(d)            integrity and independence of judgement; and

(e)            transitional Flexibility in SSB Composition.

(8)        Despite Rule 6.6, the SSB may include not more than 1 SSB Member who is not a specialised jurist in Fiqh Al-Muamalat, provided that such individual:

(a)            is an expert in Islamic finance; and

(b)            has demonstrated knowledge of Fiqh Al-Muamalat; and

(c)             meets the eligibility requirements in Rule 6.19.

(9)        Where Rule 6.8 applies:

(a)            the SSB must include at least 2 specialised jurists in Fiqh Al-Muamalat; and

(b)            the total number of SSB Members must remain odd.

(10)     The Rule 6.7 is transitional and must apply only for the first 5 years from the commencement date of these Rules.

(11)     In addition to jurists, the SSB may include non-voting SSB Advisors who are experts in finance, economics, accounting, or law, and have reasonable knowledge of Shari’ah Principles and Rules.

Guidance: Authorised Firms are strongly encouraged to appoint SSB Advisor(s), as this will improve the SSB's understanding of the broader picture, provide diversified exposure, and enable the SSB to discharge its functions and duties more effectively.

(12)     Where the Authorised Firm appoints an SSB Advisor(s), they must be subject to all the relevant provisions of these Rules related to the members of SSB, insofar as suitable, in addition to the matters specifically related to SSB Advisors. The number of SSB Advisors must not exceed the number of SSB Members.

(13)     The appointment, renewal, and removal of SSB Members and SSB Advisors must be approved by the Governing Body and must comply with AFSA’s fit and proper requirements. Their tenure must be for 3 years and renewable to a maximum of 9 years.

(14)     An Authorised Firm must ensure that the SSB is provided adequate resources, information, and access to all operations to perform its duties effectively.

(15)     The SSB must:

(a)            supervise the Authorised Firm’s activities to ensure compliance with Shari’ah Principles and Rules; and

(b)            review and approve all Islamic financial products, contracts, structures, and documentation; and

(c)             issue binding fatwas, rulings, and resolutions (“Shari’ah Opinions”) that in compliance with Maqasid Al Shari’ah as well; and

(d)            oversee the Shari’ah Compliance Function and the Internal Shari’ah Audit Function; and

(e)            review Shari’ah non-compliance events and recommend corrective actions; and

(f)              endorse the Authorised Firm’s annual Shari’ah compliance report; and

(g)            issue the Shari’ah Supervisory Annual Report; and

(h)            disclose the total remuneration of the SSB; and

(i)              formulate, elaborate, and implement a 5-year strategic plan of the SSB.

(16)     All SSB rulings and fatwas are binding on the Authorised Firm. The Governing Body must ensure full implementation of SSB decisions.

(17)     An Authorised Firm must keep a complete record of all SSB resolutions, fatwas, and opinions, including supporting evidence, rationales, and conditions.

(18)     An Authorised Firm must ensure that SSB Members, as well as SSB Advisors, are independent and free from conflict of interest. Any conflict must be disclosed to AFSA immediately.

(19)     An Authorised Firm must consider the following criteria when assessing the fitness and propriety of individuals to serve as SSB Members:

(a)            well-versed in Fiqh (Islamic Jurisprudence) and Usul Al-Fiqh (the origins of Islamic law).

(b)            Shari’ah-related (preferably Fiqh-related or Usul Al-Fiqh-related) academic qualification (equivalent of a master’s degree or above) from a recognised educational institution.

(c)             suitable practical experience (minimum 10 years for Chairman of the SSB and minimum 5 years for other SSB Members) in Fiqh Al-Muamalat (Islamic Commercial Jurisprudence) or research and academic experience in the area of Fiqh Al-Muamalat (Islamic Commercial Jurisprudence) or as SSB Member of similar institutions.

(d)            reasonable understanding of economics, law, banking, finance, and/or related fields demonstrated through relevant academic and/or professional qualification and/or practical experience in the relevant fields.

(e)            understanding of the legal and regulatory framework applicable to financial institutions in the jurisdiction.

(f)              integrity, good reputation, and absence of any disciplinary, regulatory or legal record inconsistent with fit-and-proper requirements.

(g)            independent and free from conflict of interest.

(20)     The Authorised Firm must consider the following criteria when assessing the fitness and propriety of individuals to serve as SSB Advisors:

(a)            basic understanding of Shari’ah Principles and Rules and, preferably, an appropriate understanding of Fiqh Al-Muamalat (Islamic Commercial Jurisprudence) as applicable to Islamic banking and finance.

(b)            well-versed and holds a high standing in their respective field of expertise.

(c)             suitable academic (master’s degree or above) and/or professional qualification.

(d)            suitable practical experience or research and academic experience in the relevant technical field(s) such as economics, law, banking, finance and/or related fields (not less than 10 years).

(e)            good understanding of legal and regulatory framework of the jurisdiction related to the financial sector.

(f)              good reputation and market recognition.

(g)            independent and free from conflict of interest.

(21)     If the SSB disagrees with the Authorised Firm’s senior management, Governing Body, or shareholders regarding Islamic finance matters, the opinion of the SSB prevails.

(22)     An Authorised Firm must not dismiss SSB Members due to disagreements regarding Islamic finance matters.

(23)     An Authorised Firm must notify AFSA in writing without undue delay and no later than 5 business days of any appointment, removal, resignation, or change in the composition of the Shari’ah Supervisory Board. The notification must include:

(a)            the reason for the change; and

(b)            supporting documentation; and

(c)             confirmation that all new SSB Members and SSB Advisors meet the minimum requirements under Rules 6.18 and 6.19; and

(d)            confirmation that the revised SSB composition remains compliant with AAOIFI Governance Standard (GS) №.19 “Shari’ah Supervisory Board: Appointment and Composition”.

(24)     AFSA may review any proposed or completed appointment of an SSB Member or SSB Advisor. AFSA may request additional information, object to an appointment, or require the removal of the SSB Member or SSB Advisor where it determines that:

(a)            the individual does not meet the minimum requirements under Rule 6.19; or

(b)            the individual fails to satisfy AFSA’s fit-and-proper criteria; or

(c)             the appointment creates a conflict of interest or compromises independence; or

(d)            the appointment is inconsistent with AAOIFI Governance Standards; or

(e)            the appointment may adversely affect the integrity, credibility, or soundness of the Authorised Firm’s Shari’ah governance framework.

(25)     Where AFSA objects, Authorised Firm must not proceed with the appointment or must remove the individual from the SSB without delay.

(26)     The structure, responsibilities, independence, and operating procedures of the SSB must be consistent with the relevant AAOIFI Governance Standards (GS), including requirements related to SSB appointment, dismissal, independence, documentation of decisions, and validation of Shari’ah compliance unless they conflict with AIFC Acts.

7.          Internal Shari’ah Audit Function

(1)        An Authorised Firm must establish an Internal Shari’ah Audit Function responsible, at minimum scope, for:

(a)            periodic assessment of compliance with Shari’ah Principles and Rules; and

(b)            reviewing product implementation and execution; and

(c)             verifying that SSB rulings have been implemented correctly; and

(d)            identifying and reporting Shari’ah Non-Compliance Events; and

(e)            recommending corrective actions and remediation.

(2)        The Internal Shari’ah Audit Function must be independent and must have unrestricted access to all operations and documentation relevant to Islamic Financial Business.

(3)        An Authorised Firm must ensure that the Internal Shari’ah Audit Function is independent from business units and reports directly to the Governing Body in consultation with the SSB.

(4)        The Internal Shari’ah Audit Function must have a dotted-line reporting relationship with SSB in Shari’ah Principles and Rules related issues.

(5)        The Internal Shari’ah Audit must be conducted at least annually, or more frequently depending on the size and complexity of the Authorised Firm’s operations.

(6)        The Internal Shari’ah Audit report must be submitted to:

(a)            the SSB; and

(b)            the Governing Body; and

(c)             the senior management; and

(d)            AFSA, upon request.

(7)        An Authorised Firm must establish an Internal Shari’ah Audit Function with suitable resources and documentation standards that include audit plan and auditing and/or risk-based methodology.

(8)        The Internal Shari’ah Audit Function must be led by an Internal Shari’ah Auditor who is a Designated Individual of the Authorised Firm.

Guidance: To provide flexibility to Authorised Firms, AFSA may consider granting a waiver or modification to these requirements, depending on the size of the Authorised Firm. flexibility or temporary exemption or outsourcing arrangements for providing Islamic finance activities, Islamic windows, and Islamic Financial Institutions offering investments through Shari’ah sleeves on certain functions, due to the scarcity of relevant expertise.

(9)        The Internal Shari’ah Auditor must:

(a)            Have appropriate level of knowledge in Islamic Finance and Shari'ah Principles and Rules; and

(b)            Have a good understanding of the Authorised Firm’s relevant industry (banking, financing, insurance etc.) and the regulatory environment; and

(c)             Hold at least a bachelor’s degree (or its equivalent) in:

(i)     Islamic law, including the study of Fiqh (Islamic Jurisprudence), Usul Al-Fiqh (the origins of Islamic law) and/or Fiqh Muamalat (Islamic commercial jurisprudence); or

(ii)    Islamic finance, Islamic banking, Islamic economics, or any other relevant discipline; or

(iii)  finance, banking, business, economics, accountancy, audit, or any other relevant discipline; and

(d)            Hold the relevant professional qualification (from recognised international and/or professional organisation) specific to this role, which may include but not limited to:

(i)     AAOIFI Certified Shari’ah Advisor and Auditor (CSAA) qualification; or

(ii)    CIBAFI Certified Islamic Specialist in Shari’ah Auditing (CISSA) qualification; and

(e)            Have a minimum of 3 years of experience in Shari’ah compliance, internal or external Shari’ah audit, internal or external audit, or other relevant areas.

(10)     Appointment and removal of the Internal Shari’ah Auditor must be approved by the Governing Body.

8.          Shari’ah Compliance Function

(1)        An Authorised Firm must maintain a dedicated Shari’ah Compliance Function responsible for:

(a)            ensuring ongoing compliance with Shari’ah Principles and Rules; and

(b)            monitoring transactions and processes; and

(c)             reviewing new products, marketing materials, and client agreements; and

(d)            supporting the SSB with technical analysis and documentation; and

(e)            maintaining the Shari’ah compliance manual and related procedures; and

(f)              other related functions defined in the AAOIFI Governance Standard (GS) № 9 “Shari’ah Compliance Function” and/or functions dedicated or delegated by the decision of the Authorised Firm’s SSB.

(2)        The Shari’ah Compliance Function must be led by Shari’ah Compliance Officer who is an Approved Individual of the Authorised Firm.

(3)        The Authorised Firm must ensure that the Shari’ah Compliance Function is independent from business units and reports directly to the SSB in consultation with the SEO.

(4)        The Shari’ah Compliance Function must have a dotted-line reporting relationship with the CEO in Shari’ah Principles and Rules related issues.

(5)        The Shari’ah Compliance Function must maintain a register of Shari’ah Non-Compliance Events that have occurred or a probable to occur within a reasonable outlook and ensure timely remediation.

(6)        The Shari’ah Compliance Officer must:

(a)            Have an appropriate level of knowledge in Islamic Finance and Shari'ah Principles and Rules; and

(b)            Have a good understanding of the Authorised Firm’s relevant industry (banking, financing, insurance etc.) and the regulatory environment; and

(c)             Possess a reasonable understanding of economics and finance; and

(d)            Hold at least a bachelor’s degree (or its equivalent) in:

(i)     Islamic law, including the study of Fiqh (Islamic jurisprudence), Usul Al-Fiqh (the origin of Islamic law) and/or Fiqh Muamalat (Islamic commercial jurisprudence); or

(ii)    Islamic finance, Islamic banking, Islamic economics, or any other relevant discipline; and

(e)            Hold the relevant professional qualification (from a recognized international and/or professional organisation) specific to this role, which may include but not limited to:

(i)     AAOIFI Certified Shari’ah Advisor and Auditor (CSAA) qualification; and

(f)              Have a minimum of 3 years of experience in Shari’ah compliance, internal or external Shari’ah audit, Shari’ah non-compliance risk management, or other relevant areas.

Guidance: AFSA recommends appointing residents of Kazakhstan given that the Shari'ah Compliance Officer's role requires continuous and direct engagement with the firm's operations, personnel, and Governing Body.

(7)        Appointment and removal of the Shari’ah Compliance Officer must be approved by the SSB and the AFSA.

(8)        Shari’ah Board secretariat function may be under Shari’ah Compliance Function depending on the size of the Authorised Firm.

9.          External Shari’ah Audit

(1)        An Authorised Firm must be subject to an External Shari’ah Audit (ESA) conducted in accordance with the AAOIFI Auditing Standard (AS) No. 6 “External Shari’ah Audit”.

(2)        The full implementation of the requirements of AAOIFI AS No. 6 must follow a phased transition approach, with the full scope of the standard becoming mandatory within a period of up to 5 years, subject to readiness of the market, AFSA regulatory frameworks and capacity of qualified Shari’ah audit professionals (with AAOIFI CSAA qualification).

(3)        During the transition period, the scope, frequency, and depth of external Shari’ah assurance engagements must be determined by the Governing Body based on the Authorised Firm’s risk profile, complexity of transactions and overall level of Shari’ah compliance maturity.

(4)        Upon completion of each External Shari’ah Audit, the External Shari’ah Auditor must provide an independent Shari’ah Assurance Report to the SSB and the Governing Body. The report must be made available to AFSA upon request.

PART 3: ADMINISTRATIVE

10.       Reporting and Disclosure Requirements

(1)        Authorised Firms must disclose publicly, on their website:

(a)            names of SSB Members, as well as SSB Advisors; and

(b)            SSB brief profile; and

(c)             the annual Shari’ah Supervisory Board Report issued by the SSB (within its published financial statements as well).

(2)        An Authorised Firm must notify AFSA without undue delay of any Shari’ah Non-Compliance Event (SNCE) that is assessed by the SSB as material. A material SNCE is one that:

(a)            results in the generation of material non-permissible income requiring purification; or 

(b)            significantly affects the rights or interests of customers or investors; or 

(c)             indicates a major deficiency in the Authorised Firm’s Shari’ah governance or control environment; or 

(d)            has been classified as material by the SSB, Shari’ah Compliance Function, Internal Shari’ah Audit or External Shari’ah Auditor.

11.       Record-Keeping

(1)        An Authorised Firm must retain, for a minimum of 6 years or the lifetime of the product, whichever longer, accurate and complete records of:

(a)            SSB rulings, resolutions, and fatwas; and

(b)            Shari’ah product approvals; and

(c)             internal Shari’ah review reports; and

(d)            Shari’ah compliance workpapers; and

(e)            Shari’ah audit reports and working papers; and

(f)              client documentation related to Islamic products; and

(g)            remediation measures taken following non-compliance events.

(2)        Records must be:

(a)            Accessible; and

(b)            securely stored; and

(c)             reproducible in English upon AFSA request; and

(d)            protected from unauthorised alteration.

12.       Conflicts of Interest

(1)        An Authorised Firm must implement controls to identify, prevent, and manage conflicts of interest involving:

(a)            SSB Members and SSB Advisors; and

(b)            Internal Shari’ah Audit Function and/or Internal Shari’ah Auditor; and

(c)             Shari’ah Compliance Function and/or  Shari’ah Compliance Officer; and

(d)            senior management; and

(e)            any business units engaged in Islamic operations.

(2)        An Authorised Firm must ensure SSB Members and SSB Advisors do not participate in decisions where they have a direct or indirect conflict.

(3)        All conflicts of interest must be disclosed to:

(a)            the Governing Body; and

(b)            the SSB; and

(c)             AFSA (if material).

13.       Independence Requirements

(1)        An Authorised Firm must ensure the independence of:

(a)            the SSB (including its Members and Advisors); and

(b)            the Internal Shari’ah Audit Function; and

(c)             the Shari’ah Compliance Function.

(2)        No individual responsible for product development, sales, or revenue generation may serve as SSB Member or SSB Advisor or staff of the Internal Shari’ah Audit Function.

(3)        SSB Members must not hold executive positions within the Authorised Firm.

14.       Training and Competence

(1)        An Authorised Firm must ensure that all staff involved in Islamic Financial Business receive adequate and ongoing training on:

(a)            Shari’ah Principles and Rules; or

(b)            Islamic finance contracts and structures; or

(c)             relevant AIFC Acts; or

(d)            product-specific operational requirements.

(2)        An Authorised Firm must maintain a documented training programme and keep records of participation.

(3)        Approved Individuals responsible for Shari’ah compliance and Shari’ah Audit Functions must maintain competence through continuous professional development.

(4)        An Authorised Firm must ensure the SSB Members undergo special training at least once a year and the Governing Body and senior management undergo training on Shari’ah governance and accountability at least once a year.

Annex 2 – Consequential Amendments to the AIFC Rules

PROPOSED AMENDMENTS TO THE AIFC RULES

In these amendments, underlining indicates a new text, and strikethrough indicates a removed text.

AIFC GENERAL RULES

(…)

2.         CONTROLLED AND DESIGNATED FUNCTIONS

2.1.      Mandatory appointments

2.1.1.   Appointments to be filled by Approved Individuals

(1)        Subject to (2) an Authorised Person must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:

        (a)       Senior Executive Officer;

        (b)       Finance Officer;

        (c)       Compliance Officer; and

        (d)       Money Laundering Reporting Officer.

(2)        For an Authorised Person Operating a Representative Office the mandatory appointments in (1) may be carried on by its Principal Representative.

(3)        An Authorised Firm which is a Credit Rating Agency:

            (a)        need not make the appointments referred to in (1)(b) and (d); and

            (b)        must ensure that the appointments referred to in 1(a) and (c) are held by different Approved Individuals at all times.

(4)        An Authorised Firm which is conducting Islamic Financial Business in addition to the above must appoint a Shari’ah Compliance Officer.

(…)

2.2.1.  Designation of roles as Controlled Functions

 The functions specified in GEN 2.2.2 to 2.2.5 are Controlled Functions.

(…)

2.2.5-2. Shari’ah Compliance Officer

Shari’ah Compliance Function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person responsible for an integral part of an Authorised Firm’s governance and control structure, catering to certain crucial objectives of the Authorised Firm related to its compliance with Shari’ah Principles and Rules. It is an ex-ante control function charged with the mandate to review transactions before execution to ensure Shari’ah compliance.

(…)

2.3.      Designated Functions

2.3.1. Designation of roles as Designated Functions

The functions specified in GEN 2.3.2 to 2.3.4 are Designated Functions.

(…)

2.3.6.   Internal Audit Manager

(1)     The Internal Audit Manager function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for all aspects of the internal audit function in relation to the Authorised Person's Regulated Activities.

(2)     Where an Authorised Firm conducts Islamic Financial Business, it must appoint an Internal Shari'ah Auditor. The Internal Shari’ah Audit function is carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for an independent integral part of an Authorised Firm’s governance and control structure, catering to certain crucial objectives of the Authorised Firm related to its compliance with Shari’ah Principles and Rules. It is an ex-post control function charged with the mandate to review transactions after execution to ensure Shari’ah compliance.

 

AIFC GLOSSARY

(…)

1.     INTERPRETATION

 

(…)	(…)
Audit Committee	(in Shari’ah Governance Rules) A committee established and maintained by the Board to monitor and review the Reporting Entity’s internal audit function and other internal controls.
External Shari’ah Audit	An independent annual audit of compliance with Shari’ah Principles and Rules, conducted by a qualified external Shari’ah audit provider.
Internal Shari’ah Audit Function	An independent integral part of an Authorised Firm’s governance and control structure, catering to certain crucial objectives of the Authorised Firm’s related to its compliance with Shari’ah Principles and Rules. It is an ex-post control function charged with the mandate to review transactions after execution to ensure Shari’ah compliance.
Internal Shari’ah Auditor	The Designated Individual leading the Internal Shari’ah Audit Function of a Firm who has responsibility for ex post auditing of activities and transactions in accordance with Shari’ah Principles and Rules.
Shari’ah Compliance Function	An integral part of an Authorised Firm’s governance and control structure, catering to certain crucial objectives of the Authorised Firm related to its compliance with Shari’ah Principles and Rules. It is an ex-ante control function charged with the mandate to review transactions before execution to ensure Shari’ah compliance.
Shari’ah Non-Compliance Event	Any policy, financial arrangement, activity, contract, transaction and other event that does not comply with Shari’ah Principles and Rules.
Shari’ah Non-Compliance Risk	The risk that arises from an Authorised Firm’s failure to comply with Shari’ah Principles and Rules. This is a subset of operational risks and may, in certain circumstances, result in legal, financial or reputational risks.
Shari’ah Principles and Rules	The principles, standards, rules and rulings relating to Islamic finance recognised or adopted under the laws, rules and regulatory framework of the AIFC, including applicable AAOIFI standards adopted and rulings of the relevant Shari’ah Supervisory Board rulings.
Shari’ah Supervisory Board (SSB)	An independent body of specialised jurists (Fiqh Members) in Fiqh Al-Muamalat (Islamic commercial jurisprudence). An SSB may include advisors (referred to as “SSB Advisors”) who are experts in Islamic finance, Islamic economics, accounting or law, and have reasonable knowledge of Shari’ah Principles and Rules. SSB resolutions (fatwas) and rulings are binding on the Authorised Firm.

 

AIFC ISLAMIC FINANCE RULES

(…)

5.         SHARI’AH SUPERVISORY BOARD (SSB) [intentionally omitted]

5.1.      Appointment of SSB

           (1)         An Islamic Financial Institution must appoint a Shari’ah Supervisory Board (SSB).

           (2)         An Islamic Financial Institution must ensure that:

                        (a)       its SSB consists of at least 3 members; and

                        (b)         the members appointed to the SSB are competent to perform their functions as SSB members taking into account their qualifications and previous experience; and

(c)        any appointments, dismissals or changes in respect of members of the SSB are approved by the Governing Body of the Islamic Financial Institution; and

                        (d)       no member of the SSB is a director or controller of the Islamic Financial                                       Institution.

Guidance:

The AFSA may request the AIFC Central Shari’ah Board to provide guidance or advice on Shari’ah matters.

5.2.      Policy in relation to SSB

            An Islamic Financial Institution must document its policy in relation to:

                       (a)         how appointments, dismissals or changes will be made to the SSB; and

                       (b)          the process through which the suitability of SSB members will be considered; and

                       (c)         the remuneration of the members of SSB.

5.3.      Independence of SSB

(1)      An Islamic Financial Institution must take reasonable steps to ensure that the members of the SSB are independent of and not subject to any conflict of interest with respect to the firm.

 (2)       An Authorised Firm conducting Islamic Financial Business must ensure that the systems and controls it is required to maintain under Rule 4.1 provides that:

 

(a)        a member of the SSB is obliged to notify that Authorised Firm of any conflict of interest that such member may have with respect to the Authorised Firm or, in the case of an Investment Trust, the Trustee;

(b)        the Authorised Firm will take appropriate steps to manage any such conflict of interest so that the Islamic Financial Business activities are conducted appropriately and in compliance with Shari’ah, the interest of a Client is not adversely affected, and all Clients are fairly treated and not prejudiced by any such interests; and

(c)       If the Authorised Firm is unable to manage a conflict of interest as provided                        above, it must dismiss or replace the member as appropriate.

5.4.      Information about SSB to be given to AFSA

An Islamic Financial Institution must provide AFSA upon request, with information on its appointed or proposed SSB members about their qualifications, skills, experience and   independence.

5.5.      Obligation to assist SSB

An Islamic Financial Institution must take reasonable steps to ensure that it and its employees:

(a)         provide such assistance as the SSB reasonably requires to fulfil its duties; and

                       (b)         give the SSB right of access at all reasonable times to relevant records and                                   information; and

                       (c)         do not interfere with the SSB’s ability to discharge its duties; and

                       (d)         do not provide false or misleading information to the SSB.

5.6.      Record-keeping

An Islamic Financial Institution must establish and retain records of:

          (a)         its assessment of the competence of the SSB members; and

                      (b)          the agreed terms of engagement of each member of the SSB;

            for at least 6 years following the date on which the individual ceased to be a member of the             SSB.

5.7.      Records of assessment of competency of SSB

The records of the assessment of competence of SSB members in Rule 5.6 above, where         applicable, must include at a minimum:

          (a)         the factors that have been considered when making the assessment of                              competence; and

                      (b)          the qualifications and experience of the SSB members; and

                      (c)          the basis upon which the Islamic Financial Institution considers that the                                       proposed SSB member is suitable; and

(d)         details of any other SSBs of which the proposed SSB member is, or has been, a member.

5.8.      Shari’ah reviews to be undertaken

An Islamic Financial Institution must ensure that all Shari’ah reviews are undertaken by the            SSB in accordance with the AAOIFI Standards on Governance (GSIFI No 2).

5.9.      Annual Shari’ah report

(1)        An Islamic Financial Institution must commission an annual report from the SSB which complies with the AAOIFI Standards on Governance (GSIFI No 1).

(2)        An Islamic Financial Institution must give the AFSA, a copy of each annual report of the institution’s SSB within 3 months after the day the relevant financial year of the institution ends.

5.10.    Financial promotions and communications

(1)        Before an Islamic Financial Institution issues or approves a financial promotion or communication, it must ensure that the communication material discloses the identity of the SSB which has reviewed the relevant products or services. These disclosures are in addition to the information required to be disclosed in financial promotions, by the AIFC COB Rules.

(2)        Financial communication means any communication (made through any medium including brochures, telephone calls and presentations) the purpose or effect of which is:

(a)       to promote or advertise specified products;

(b)       to promote or advertise any regulated activity (or any activity that would be a                 regulated activity if it was carried on in or from the AIFC); or

(c)       to invite or induce any person to enter into an agreement with any person in             relation to a specified product; or

(d)        to invite or induce any person to engage in any regulated activity (or an activity that would be a regulated activity if it was carried on in or from the AIFC)

5.11.     Internal Shari’ah reviews

(1)        An Islamic Financial Institution must perform an internal Shari’ah review to assess the extent to which the institution complies with fatwas, rulings and guidelines issued by its SSB.

(2)        An Islamic Financial Institution must perform the internal Shari’ah review in accordance with the AAOIFI Standards on Governance (GSIFI No. 3).

(3)       An Islamic Financial Institution must ensure that:

(a)       the internal Shari’ah review is performed by its internal audit function or                                 compliance oversight function; and

(b)        the individuals or departments involved in performing the review are competent and sufficiently independent to assess compliance with Shari’ah.

Guidance

For the purposes of assessing competency of personnel or departments which perform the internal Shari’ah review, Islamic Financial Institutions should consult the AAOIFI Standards on Governance (GSIFI No. 3).

(…)

7.5.      SSB for an Islamic Investment Fund [intentionally omitted]

(1)           A Fund Manager of a Domestic Fund that is a Non-Exempt Fund must, subject to (3), appoint a SSB to its Fund that meets the following requirements:

(a)               the SSB has at least three members;

(b)               the members appointed to the SSB are competent to perform their functions as SSB members of the Fund;

(c)               any appointments, dismissals or changes in respect of members of the SSB are approved by the Governing Body of the Fund Manager; and

(d)               no member of the SSB is a director or Controller of the Fund or its Fund Manager.

(2)           A Fund Manager may comply with the requirement in (1) by appointing to the Fund its own SSB, provided the requirements in (1) are also met.

(3)           A Fund Manager is not required to comply with the requirement (1) in where it relies, for the purposes of making Investments for the Fund, on a widely accepted Shari'ah screening process such as investing in securities included in, or recognised by reference to, an Islamic index, Sukuk, or treasury instruments issued by a Shari'ah compliant financial services provider.

Guidance

i) In appointing a SSB for the purposes of Rule 7.5(1), the Fund Manager should consider the previous experience and qualifications of the proposed SSB members to assess whether the proposed SSB member is competent to advise on the activities undertaken by the Islamic Fund.

ii)                 Although the Fund Managers of Exempt Funds are not subject to the requirement for the appointment of a SSB for such a Fund, they would need to ensure that the Exempt Funds they manage continue to meet the applicable Shari’ah requirements applicable to the Fund. They may use a member of the SSB appointed at the firm level for the purposes of ascertaining compliance with the Shari’ah requirements. The manner in which they demonstrate to the Unitholder of the Exempt Fund as to how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between the Unitholders and the Fund Manager.

iii)                An External Fund Manager may not be able to take advantage of Rule 7.5 (2) above, unless it has a SSB appointed for their own firm. In contrast the Fund Manager of an External Fund will be able to use its SSB to meet the SSB requirement relating to the Fund as set out in Rule 7.5(2) above.

(4)           If the Fund Manager appoints to the Fund the same SSB it has appointed to meet its own requirements at the firm level, the documents required under Rule 7.5 (5) below must be included in or otherwise form part of its Shari’ah Governance policies and procedures.

(5)           The Fund Manager of a Fund must establish and retain, for six years, records pertaining to:

(a)               Its assessment of the competency of the SSB members; and

(b)               the agreed terms of engagement of each member of the SSB.

Guidance

The records of the assessment of competency of SSB members should clearly indicate, at least:

i) the factors that have been taken into account when making the assessment of competency; ii) the qualifications and experience of the SSB members;

iii)                the basis upon which the Fund Manager has deemed that the proposed SSB member is suitable; and

iv)                details of any other SSBs of which the proposed SSB member is, or has been, a member.

(6)           The Islamic Financial Business policy and procedures manual must provide that:

(a)               a member of the SSB is obliged to notify the Fund Manager of any conflict of interest that such member may have with respect to the Fund or the Fund Manager, and if appointed, or in the case of an Investment Trust, the Trustee; and

(b)               the Fund Manager will take appropriate steps to manage any such conflict of interest so that the Islamic Financial Business is carried out appropriately and in compliance with Shari’ah, the interest of a Unitholder is not adversely affected, and all Unitholders are fairly treated and not prejudiced by any such interests.

(7)           If a Fund Manager is unable to manage a conflict of interest as provided above in Rule

7.5(6), it must dismiss or replace the member as appropriate.

(8)           The Fund Manager of a Fund must provide the AFSA at its request with information on the qualifications, skills, experience and independence of the individuals who are appointed or proposed to be approved as members of the SSB.

(9)           The Fund Manager of a  Fund  must  take  reasonable  steps  to ensure that the Fund Manager and the Fund’s Employees:

(a)               provide such assistance as the SSB reasonably requires to fulfill its duties;

(b)               give the SSB right of access at all reasonable times to relevant records and information

(c)               do not interfere with the SSB’s ability to discharge its duties; and (d)       do not provide false or misleading information to the SSB.

(10)        In the event of a Trustee being appointed to the Fund, the Trustee must also  take  reasonable  steps  to  ensure that its Employees comply with (a)-(d) of the rule 7.5(9) above.

7.6.      External Shari’ah reviews and periodic reports [intentionally omitted]

(1)        A Fund Manager of a Domestic Fund that is a Non-Exempt Fund, must ensure that all Shari’ah reviews of the Fund, wherever applicable, are undertaken by the SSB in accordance with AAOIFI GSIFI No 2.

(2)        In the case of a Domestic Fund that is a Non-Exempt Fund, the Fund Manager must commission an interim and an annual report relating to the Fund operations from the SSB which complies with AAOIFI GSIFI No 1.

(3)        The Fund Manager must deliver a copy of the interim and annual report referred to in (2) above, to the Unitholders and must include the report of the SSB in the annual report required under the AIFC CIS Rules.

Guidance

Although the Fund Managers of Exempt Funds are not subject to the Shari’ah review process, they would need to ensure that the Exempt Fund continues to meet the Shari’ah requirements, particularly for the purposes of their annual and interim reports, which are required to be prepared under applicable the AIFC CIS Rules. However, the manner in which they demonstrate to the Unitholders of the Fund how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between the Unitholders and the Fund Manager.

7.7.      Internal Shari’ah review [intentionally omitted]

(1)        The Fund Manager of a Domestic Fund that is a Non-Exempt Fund must perform an internal Shari’ah review to assess the extent to which the Fund complies with fatwas, rulings and guidelines issued by the Fund’s SSB.

(2)        The Fund Manager must perform the internal Shari’ah review in accordance with AAOIFI GSIFI No. 3.

Guidance

i)          The Fund Manager of an umbrella Fund which has an Islamic Sub-Fund should, to the extent possible, perform the internal Shari’ah review in accordance with AAOIFI GSIFI No. 3 and must document the manner in which it will conduct that part of the internal Shari’ah review that is not conducted in accordance with AAOIFI GSIFI No. 3.

ii)         Although the Fund Managers of Exempt Funds are not subject to the specific internal Shari’ah requirements, they would need to ensure that the Exempt Fund continues to meet the applicable Shari’ah requirements. However, the manner in which they demonstrate to the Unitholders of the Fund how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between the Unitholders and the Fund Manager.

iii)        The Fund Manager must ensure that the internal Shari’ah review referred to in this section is performed by the internal audit function of the Fund or the compliance function of the Fund and that the individuals or departments involved in performing the review are competent and sufficiently independent to assess compliance with Shari’ah.

Guidance

For the purposes of assessing competency of personnel or departments which perform the internal Shari’ah review, Fund Manager should consult AAOIFI GSIFI No. 3 paragraphs 9 to 16 inclusive.