• IFR 6.2 IFR 6.2 Shari'a Supervisory Board for an Islamic Fund

    • IFR 6.2.1 IFR 6.2.1

      (a) A Fund Manager of a Domestic Fund that is a Public Fund must, subject to IFR 6.2.1(c), appoint a Shari'a Supervisory Board to its Fund that meets the following requirements:
      (i) the Shari'a Supervisory Board has at least three members;
      (ii) the members appointed to the Shari'a Supervisory Board are competent to perform their functions as Shari'a Supervisory Board members of the Fund;
      (iii) any appointments, dismissals or changes in respect of members of the Shari'a Supervisory Board are approved by the Governing Body of the Fund Manager; and
      (iv) no member of the Shari'a Supervisory Board is a director or Controller of the Fund or its Fund Manager.
      (b) A Fund Manager may comply with the requirement in IFR 6.2.1(a) by appointing to the Fund the same Shari'a Supervisory Board as it has appointed to itself as an Authorised Person (and whether acting as an Islamic Financial Institution or through an Islamic Window) in accordance with IFR 3.5.2, provided the requirements in IFR 6.2.1(a) are also met.
      (c) A Fund Manager is not required to comply with the requirement in IFR 6.2.1(a) where it relies, for the purposes of making investments for the Fund, on a widely accepted Shari'a 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'a-compliant financial services provider regulated by an international recognised and reputable financial services regulator.

      • Guidance

        (i) In appointing a Shari'a Supervisory Board for the purposes of IFR 6.2.1(a), the Fund Manager should consider the previous experience and qualifications of the proposed Shari'a Supervisory Board members to assess whether the proposed Shari'a Supervisory Board member is competent to advise on the activities undertaken by the Islamic Fund. If the Fund Manager is appointing the same Shari'a Supervisory Board as it has appointed to the firm pursuant to IFR 6.2.1(b), the Fund Manager should still consider whether the requirements in both IFR 3.5.2(a) and IFR 6.2.1(a) are met in respect of that board.
        (ii) If the Fund Manager is relying on Shari'a screening methodologies such as the Dow Jones Shari'a index, such screening is generally regarded as widely accepted and accessible. However, if less widely known methodologies are used, the Fund Manager should be able, upon request by the Regulator, to demonstrate to the satisfaction of the Regulator the grounds on which it considers the particular methodology used to be acceptable and reliable.
        (iii) Although the Fund Managers of Exempt Funds and Qualified Investor Funds are not subject to the requirement for the appointment of a Shari'a Supervisory Board for such a Fund, they would need to ensure that the Exempt Funds or Qualified Investor Funds they manage continue to meet the Shari'a requirements applicable to the relevant Fund. They may use a member of the Shari'a Supervisory Board appointed at the firm level for the purposes of ascertaining compliance with the Shari'a requirements. The manner in which they demonstrate to the Unitholder of the Exempt Fund or Qualified Investor 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.
        (iv) A Foreign Fund Manager may not be able to take advantage of IFR 6.2.1(b), unless it has a Shari'a Supervisory Board appointed at the firm level. In contrast the Authorised Fund Manager of a Foreign Fund will be able to use its Shari'a Supervisory Board to meet the Shari'a Supervisory Board requirement relating to the Fund as set out in IFR 6.2.1(b).

    • IFR 6.2.2

      (a) Subject to 6.2.2(b), the Fund Manager of a Fund must document the Fund's policy in relation to:
      (i) how appointments, dismissals or changes will be made to the Shari'a Supervisory Board;
      (ii) the process through which the suitability of Shari'a Supervisory Board members will be considered; and
      (iii) the remuneration of the members of the Shari'a Supervisory Board.
      (b) If the Fund Manager, pursuant to IFR 6.2.1(b), appoints to the Fund the same Shari'a Supervisory Board it has appointed to the firm, the documents required under IFR 6.2.2(a) must be included in or otherwise form part of the records required under IFR 3.5.3.

    • IFR 6.2.3 IFR 6.2.3

      (a) Subject to IFR 6.2.3(b), the Fund Manager of a Fund must establish and retain, for six years, records of:
      (i) its assessment of the competency of the Shari'a Supervisory Board members;
      (ii) the agreed terms of engagement of each member of the Shari'a Supervisory Board; and
      (iii) the matters in IFR 6.2.1(a)(iii) and IFR 6.2.2.
      (b) If the Fund Manager, pursuant to IFR 6.2.1(b), appoints to the Fund the same Shari'a Supervisory Board it has appointed to itself as an Authorised Person (and whether acting as an Islamic Financial Institution or through an Islamic Window), the records required under IFR 6.2.3(a) must be included in or otherwise form part of the records required under IFR 3.5.4.

      • Guidance

        (i) The records of the assessment of competency of Shari'a Supervisory Board members should clearly indicate, at least:
        (A) the factors that have been taken into account when making the assessment of competency;
        (B) the qualifications and experience of the Shari'a Supervisory Board members;
        (C) the basis upon which the Fund Manager has deemed that the proposed Shari'a Supervisory Board member is suitable; and
        (D) details of any other Shari'a Supervisory Boards of which the proposed Shari'a Supervisory Board member is, or has been, a member.
        (ii) If the Fund Manager is relying on IFR 6.2.1(b), then the due diligence process, and the records maintained under IFR 3.5.3 and IFR 3.5.4, should be augmented with the matters specified under IFR 6.2.1(a).

    • IFR 6.2.4

      (a) The Islamic Financial Business policy and procedures manual must provide that:
      (i) a member of the Shari'a Supervisory Board 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
      (ii) 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'a, the interest of a Unitholder is not adversely affected and all Unitholders are fairly treated and not prejudiced by any such interests.
      (b) If a Fund Manager is unable to manage a conflict of interest as provided above, it must dismiss or replace the member as appropriate.

    • IFR 6.2.5

      The Fund Manager of a Fund must provide the Regulator 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 Shari'a Supervisory Board.

    • IFR 6.2.6

      (a) The Fund Manager of a Fund must take reasonable steps to ensure that the Fund Manager and the Fund's Employees:
      (i) provide such assistance as the Shari'a Supervisory Board reasonably requires to discharge its duties;
      (ii) give the Shari'a Supervisory Board right of access at all reasonable times to relevant records and information;
      (iii) do not interfere with the Shari'a Supervisory Board's ability to discharge its duties; and
      (iv) do not provide false or misleading information to the Shari'a Supervisory Board.
      (b) If appointed, the Trustee must also take reasonable steps to ensure that its Employees comply with IFR 6.2.6(a)(i)–(iv).