The Securities and Exchange Commission of Pakistan (SECP) has published a consultation paper to seek comments and feedback of stakeholders on implementation of a new strategy for adoption of AAOIFI’s Shariah, accounting, auditing and governance standards. The proposed new strategy aims to enhance the adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards by introducing a more comprehensive and interactive approach, with a phased implementation of all standards to ensure effective compliance. By considering the maturity level of industry and practical difficulties in adopting all standards at once, the proposed strategy suggests a staggered approach to implementation. Presently, only 7 Shariah standards have been adopted, whereas the adoption of 10 more Shariah standards is in process. However, the existing approach, which includes picking standards based on necessity, produces an inadequate framework since many significant and consequential features offered in accounting, auditing, governance, and other Shariah-related standards may be missed out. Therefore, a new strategy has been envisaged emphasizing comprehensiveness, integration, interaction, feedback, and preparedness for global and domestic Islamic finance growth.

All of AAOIFI’s standards shall be adopted as non-binding guidelines, and institutions will be encouraged to voluntary adopt them while conducting Islamic financial transactions. After a period of general sensitization, compliance will shift to a "comply or explain" approach with penal action for non-compliance (not less than three years; the period will be announced later). The final phase mandates full compliance with notified standards, and it is believed that the gradual implementation aims to better equip the industry for smooth compliance. It is expected that the new strategy will increase the quality of Islamic financial services being offered in regulated sectors and greatly assist in enhancing transparency and compliance in Islamic financial transactions, thereby enhancing stakeholder confidence. The consultation paper can be accessed online at: https://www.secp.gov.pk/document/consultation-paper-strategy-for-aaoifi-shariah-standards/, and feedback and comments on the same can be emailed at Islamic.finance@secp.gov.pk. The SECP also intends to hold roundtable sessions to make the public consultation process more meaningful.

Credit: Independent News Pakistan (INP)