The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has announced the issuance of five new governance standards on Shari’ah governance. These standards were approved during the 37th meeting of its Governance and Ethics Board (AGEB) and are a significant development aimed at enhancing Shari’ah compliance within the Islamic finance sector. The new governance standards are part of a broader initiative to create a comprehensive Shari’ah governance framework, designed to establish clear principles, rules, and best practices for Islamic financial institutions.
The set of standards addresses various aspects of Shari’ah governance, ensuring that institutions adhere to the ethical and religious guidelines that define Islamic finance. The first of these standards, AAOIFI GS 1 (2024), outlines the Shari’ah governance framework itself, laying the foundation for all governance processes within Islamic financial institutions. Meanwhile, AAOIFI GS 19 focuses on the appointment and composition of Shari’ah Supervisory Boards, which play a crucial role in overseeing compliance with Shari’ah principles.
In addition, AAOIFI GS 20 addresses the functions and operational procedures of these boards, ensuring that their activities are carried out effectively and in accordance with established Shari’ah guidelines. AAOIFI GS 21 provides the necessary framework for the review and reporting processes that the Shari’ah Supervisory Boards must follow to evaluate compliance. Finally, AAOIFI GS 22 applies Shari’ah governance principles to the subsidiaries and associates of Islamic financial institutions, ensuring that the entire organization aligns with the required standards.
This initiative marks a pivotal step towards improving Shari’ah governance within the Islamic finance industry, as it seeks to provide clear guidance and enhance the level of compliance across all levels of financial operations. The new governance standards will support the continued growth and integrity of Islamic finance, ensuring that institutions uphold the values that underpin the industry.