Regulation No. 20/2022/BCC/DSBR on Special Provisions for Credit Institutions Engaging in Islamic Finance in the Union of the Comoros

BANQUE CENTRALE DES COMORES

REGULATION NO. 20/2022/BCC/DSBR

ON SPECIAL PROVISIONS APPLICABLE TO CREDIT INSTITUTIONS EXERCISING ISLAMIC FINANCE ACTIVITIES IN THE UNION OF THE COMOROS

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Having regard to the Framework Law No. 80-08 of May 3, 1980, relating to currency and the role of the Central Bank of the Comoros in the control of banks, financial institutions, credit, and foreign exchange, and notably Articles 6 and 7 thereof;

Having regard to the Banking Law No. 13-003/AU of June 12, 2013, authorizing the exercise of Islamic finance and notably Articles 5, 6, and 36 thereof;

Having regard to Regulation No. 002-2018/BCC/DSBR relating to corporate governance of credit institutions;

Having regard to Regulation No. 011/2015/BCC/DSBR, relating to the internal control, risk management, and control framework of credit institutions;

THE GOVERNOR OF THE CENTRAL BANK OF THE COMOROS Sets the special provisions applicable to credit institutions exercising Islamic finance activities

TITLE I: DEFINITIONS AND GENERAL PROVISIONS

Article 1: Definitions

For the application of this Regulation, the following terms are defined as:

a) Islamic Bank: Any credit institution that conducts all its transactions in double compliance with the Banking Law on the one hand, and the principles and rules of Islamic finance on the other hand. To this effect, these banks use only Islamic finance contracts, which must respect both the applicable Banking Law and the principles and rules of Islamic finance.

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b) Islamic Window: Islamic windows are counters opened within conventional banks but which only market products and services in conformity with the rules and principles of Islamic finance. Islamic windows use the same contracts and distribute the same products as exclusively Islamic banks. The major difference lies in the fact that, from the perspective of its balance sheet, an Islamic window is included in the overall balance sheet of the conventional bank hosting it.

c) Sharia Committee: An independent body composed of experts in Islamic finance and Islamic jurisprudence, designated by the credit institution to assume responsibility for the compliance of its operations with the rules and principles of Islamic finance, vis-à-vis clients and the Central Bank of the Comoros.

d) Central Sharia Compliance Council: The Sharia compliance body of the Central Bank of the Comoros, it is responsible for ensuring the adequacy of Islamic financial practices in the Union of the Comoros with Islamic Law, and it is composed of experts in Islamic finance and Islamic jurisprudence;

Article 2: Scope of Application

The provisions of this Regulation apply to all credit institutions exercising or wishing to exercise Islamic finance activities in the Union of the Comoros.

Article 3: Typology of Credit Institutions Exercising Islamic Finance Activities

Credit institutions exercising Islamic finance activities are classified into two categories:

Credit institutions exercising Islamic finance activities exclusively. These institutions may use the term "Islamic" in their corporate name, trade name, advertising, and communication materials;
Credit institutions exercising Islamic finance operations partially through a dedicated window. These institutions may not use the term "Islamic" in their corporate name and trade name but may use it in contractual and commercial documentation, for investment, financing, and deposit operations, as well as for services offered by the Islamic window. For the marketing of Islamic finance operations and services, these institutions must establish a visual identity, dedicated agencies, or counters.

TITLE II: CONDITIONS FOR EXERCISING ISLAMIC FINANCE ACTIVITIES BY CREDIT INSTITUTIONS

Article 4: Approval Conditions for Exercising Islamic Finance in the Union of the Comoros

The approval conditions for Islamic finance institutions are determined taking into account the typology set out in Article 3 of this Regulation.

Credit institutions planning to exercise Islamic finance operations exclusively must submit an approval application under the conditions provided for in Articles 5 and 6 of this Regulation.

Credit institutions planning to open an Islamic window must:

If they are applying for approval as a credit institution for the first time, specify their intention, mention it in the approval application, and explain their strategy. These must comply with the conditions provided for in Articles 5 and 7 of this Regulation, attaching the documents and information specified in Annex I of this Regulation;
If they already hold approval for conventional finance, credit institutions must submit an application for authorization to extend their activities under the conditions provided for in Articles 6 and 7 of this Regulation, prior to exercising the envisaged Islamic finance activities.

Article 5: List of Documents and Information Constituting the Approval Application File for Credit Institutions Planning to Exercise Islamic Finance Operations Exclusively

Notwithstanding the list of documents to be provided defined in Annex 1 of Regulation No. 16/2015/BCC/DSBR relating to the approval of financial institutions, the approval application file for Islamic banks must conform to the list presented in Annex I of this Regulation.

The Central Bank of the Comoros may request any additional information or documents not contained in the annex list that it deems necessary for the processing of the application.

Article 6: Prior Authorization of Credit Institutions for the Opening of an Islamic Counter

The opening of an Islamic window is subject to prior authorization from the Central Bank of the Comoros.

The prior authorization application includes the documents and information listed in Annex I of this Regulation and any other documents and information required during the processing of the application.

TITLE III: MODALITIES FOR CONTROLLING COMPLIANCE WITH THE PRINCIPLES AND RULES OF ISLAMIC FINANCE

Article 7: Designation of a Sharia Committee

Each credit institution exercising Islamic finance activities must be equipped with a Sharia Committee.

The Sharia Committee is a body responsible for ensuring the compliance of the credit institution's operations with the rules and principles of Islamic finance before transmission and request for validation by the Central Sharia Compliance Council.

It ensures that the financial transactions of the Islamic financial institution are in conformity with Muslim commercial law. In doing so, it ensures good Sharia governance, of which it is the key component within the institution.

This body must enjoy independence in formulating its opinions within the framework of its mandate. This independence must not be influenced by commercial constraints.

However, the Sharia Committee may be that of the parent bank, the financial holding company of the credit institution, the Union for Decentralized Financial Institutions, or any other external entity engaged with the institution under a specific mandate agreement, subject to compliance with the provisions of Articles 8 and 9 of this Regulation.

Article 8: Missions of the Sharia Committee

The Sharia Committee is responsible for:

Advising the credit institution on compliance with the principles and rules of Islamic finance;
Analyzing the compliance of the credit institution's operations with the principles and rules of Islamic finance;
Approving new Islamic products marketed by the institution;
Providing guidance for the implementation of first and second-level Sharia compliance controls;
Analyzing and approving annually the audit reports on compliance with the principles and rules of Islamic finance;
Issuing an independent opinion by delivering a Compliance Certificate for envisaged operations and services.

Article 9: Composition of the Sharia Committee

The Sharia Committee is established by the General Assembly upon proposal of the Board of Directors. It is composed of at least three (03) members.

The members composing the Sharia Committee must:

Possess good moral character and not have been convicted, notably for offenses relating to property or those affecting probity, nor for offenses provided for in Article 22 of Banking Law No. 13-003/AU;
Possess the necessary skills to perform their mission, having notably experience or training in Muslim commercial law or Muslim financial law, as well as a good knowledge of the banking regulations applicable in the Union of the Comoros;
Be Comorian nationals or benefit from a waiver from the Central Bank of the Comoros.
Be free from any conflict of interest with the credit institution or its directors, administrators, shareholders, subsidiaries, senior management, or any related person;

The designation of the members of the Sharia Committee as well as any changes affecting the composition of said Committee must be notified to the Central Bank of the Comoros.

The dismissal of members of the Sharia Committee is pronounced in the same forms as their nomination by the General Assembly, upon proposal of the Board of Directors.

The decision of dismissal, duly motivated, is communicated to the Central Bank of the Comoros within thirty (30) working days.

Article 10: Client Information

Credit institutions exercising Islamic finance activities inform their clients, by all means, of the identity of the members of the Sharia Committee as well as any changes occurring in its composition.

They keep at the disposal of clients the reports, opinions, and compliance certificates issued by the Sharia Committee.

Article 11: Internal Verification Device

Credit institutions exercising Islamic finance activities must integrate into their internal control system an adequate device allowing to verify, evaluate, and monitor the compliance of operations executed with respect to the opinions and certificates issued by the Sharia Committee.

Article 12: Obligations of the Deliberative and Executive Bodies of the Credit Institution

The deliberative and executive bodies ensure that the credit institution respects the principles and rules of Islamic finance.

The executive body ensures that the Sharia Committee has the necessary information and means and enjoys the required independence to carry out the missions entrusted to it. It must also ensure that the Sharia Committee is associated notably with:

all projects initiated by the institution, likely to generate a risk of non-compliance with the principles and rules of Islamic finance, particularly the launch of new products as well as communication campaigns;
the development of policies and procedures of the institution relating to the principles and rules of Islamic finance.

Article 13: Sharia Compliance Audit

Credit institutions exercising Islamic finance activities integrate the respect of the principles and rules of Islamic finance into their internal audit device. They prepare an annual audit report on compliance with the principles and rules of Islamic finance addressed to the Compliance Council of the Central Bank of the Comoros.

Article 14: Sharia Non-Compliance Risk

Credit institutions exercising Islamic finance activities produce annually a risk map of non-compliance with the principles and rules of Islamic finance.

Article 15: Principle of Creation of a Central Sharia Compliance Council

The Central Sharia Compliance Council is the Sharia governance body attached to the Central Bank of the Comoros; it is responsible for:

Ensuring the compliance of Islamic financial practices within the Comorian financial market with Sharia principles;
Standardizing Islamic practices and products;
Ruling, if necessary, as the final authority, on any divergent interpretation of a product by Sharia Committees;
Evaluating the compliance of operations and activities after analysis of the annual reports communicated;

Setting directives regarding Sharia governance.

The Central Bank of the Comoros specifies by way of a specific regulation the organization and functioning of the Central Sharia Compliance Council.

TITLE IV: TRANSITIONAL AND FINAL PROVISIONS

Article 16: Opinion on Compliance with the Principles and Rules of Islamic Finance

As a transitional measure and before the establishment of the Central Sharia Compliance Council, the CBC may submit the requests referred to in Article 5 to the opinion of any other entity or expert specialized in Islamic jurisprudence. The opinion delivered at the end of the consultation is binding on all concerned credit institutions.

Article 17: Transitional Provisions

Credit institutions approved before the entry into force of this Regulation and offering Islamic finance products and services to the public must communicate the required information according to their typology, in accordance with the procedure defined in Article 4 above, within three months following the signing of this Regulation.

Article 18: Entry into Force

This Regulation enters into force as of its date of signature.

Moroni on ..08.../..11.../2022

Dr. Younoussa IMANI

[IMAGE: Seal of the Central Bank of the Comoros]

ANNEXES

1- List of documents to be provided by credit institutions wishing to exercise Islamic finance activities exclusively

In addition to the modalities provided for in Articles 18 to 23 of Law No. 13-003/AU on the regulation of financial institution activities, financial institutions wishing to exercise Islamic finance activities exclusively must provide the following documents:

Mention in the statutes of the credit institution the exercise of Islamic finance;
Market study demonstrating the interest or development potential of Islamic finance for the credit institution;
Activity program of the institution for at least five years, presenting the nature and volume of envisaged operations;
Prospective financial statements, for five years;
Dated and signed curricula vitae, notably tracing the academic training of the proposed administrators and executives;
Islamic finance training plan for dedicated personnel;
Dated and signed curricula vitae, notably tracing the academic training of the members of the Sharia Committee and their experience in the banking, financial, or any other field deemed compatible with the envisaged functions;
Draft service agreement with the Sharia Committee;
Organizational chart showing the hierarchical attachment of the Internal Compliance Council;
List of contracts and products/services planned;
Compliance Certificate(s) issued by the Sharia Committee;
Procedure manuals for Islamic finance activities.

2- List of documents to be provided by credit institutions requesting prior authorization for the opening of an Islamic window

Mention in the statutes of the credit institution the exercise of Islamic finance;
Minutes of deliberation of the bodies authorized to authorize the exercise of the Islamic window by the credit institution;
Certificate of commitment to implement the separation of capital of the conventional branch and that of the Islamic window;
Certificate of commitment not to use deposits collected in the Islamic window for activities non-compliant with the principles and rules of Islamic finance;
Market study demonstrating the interest or development potential of Islamic finance for the credit institution;
Amount and modalities for the allocation of financial resources to the Islamic window;
Activity program of the Islamic window for at least five years, presenting the nature and volume of envisaged operations;
Prospective financial statements, for five years;
Dated and signed curricula vitae, notably tracing the academic training of the proposed administrators and executives;
Number of employees dedicated to the Islamic window, distinguishing employees who will be exclusively assigned to the Islamic window and those whose activities will touch both branches (conventional and Islamic);
Islamic finance training plan for personnel dedicated to the Islamic window;
Dated and signed curricula vitae, notably tracing the academic training of the members of the Sharia Committee and their experience in the banking, financial, or any other field deemed compatible with the envisaged functions;
Draft service agreement with the Sharia Committee;
Organizational chart showing the hierarchical attachment of the Sharia Committee;
List of contracts and products/services planned;
Certificate(s) of respect issued by the Sharia Committee;
Commercial documents, visual identity, and corporate name for the Islamic window;
Procedure manuals for Islamic finance activities highlighting the need to identify Islamic finance activities at the accounting level;

Procedures for the preparation of the income statements of the Islamic window, the balance sheet of the Islamic finance activity, the audit report on compliance with the principles of Islamic finance, and the treatment of revenues non-compliant with Islamic finance.

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