Decision No. 15 on Islamic Collective Investment Schemes

Decision Number 15
On Islamic Collective Investment Schemes The Chairman of the Capital Markets Authority (hereinafter the “CMA”)/Governor of the Banque du Liban, Pursuant to Law 161 of August 17, 2011 on Capital Markets, this vested in the CMA all the powers related to the establishment and functioning of Islamic Collective Investments Schemes, Pursuant to Law 575 of February 11, 2004, in particular article 4, on the establishment of Islamic Banks in Lebanon, Pursuant to Law 706 of December 9, 2005 on the Islamic Collective Investments Schemes in transferable securities and other financial instruments, Pursuant to the decision of the Board of the CMA taken in its meeting held on December 20, 2013, Declares the following,
Article 1: For the purpose of the implementation of this decision’s provisions, the terms hereunder shall have the meaning ascribed to
them below:
“Islamic Scheme” : The Islamic Collective Investment Scheme in Islamic financial instruments and other financial instruments aimed at the collective investment of the investors’ funds, according to the risk distribution principle, and in conformity with the Sharia laws and regulations, without prejudice to the provisions of the observed laws and regulations. The “Islamic Scheme” may be represented by an “Islamic Investment Fund” or an “Islamic Investment Company”.

“Islamic
Investment Fund”
: A collective investment fund specialized in the investment in Islamic financial instruments and other financial instruments, according to the Islamic Sharia rules. “Islamic Investment Company” : An open end investment company, specialized in the investment in Islamic financial instruments and other financial instruments according to the Islamic Sharia rules. “Administrator” : The Islamic bank, financial institution or specialized company in charge of managing the “Islamic Scheme”. “Investments” : Investing funds in order to own shares, “Islamic financial instruments” or “units” of the collective investment Schemes, for the purpose of trading or generating a revenue. “Specialized Collective Investment Schemes” : Schemes which invest directly in “Islamic financial instruments” or in any other financial instruments stemming from one or many specific projects, issued by the “Administrator” of the “Islamic Scheme” to the investors, with the term of the “Islamic Scheme” linked to the term of the project or projects. “Units” : The shares or nominative stakes representing the properties of their owners within the assets of the “Islamic Scheme”. “Net assets” : Represent the rights of the investors, and include the equivalent of the contributions of the “units” owners, undistributed net investments income (or investments’ losses), undistributed net realized profits (or net realized losses), net increase or decrease in the investments value, and the net of any other assets. “Capital margins” : Additional funds collected from “units” owners or other parties, without issuing any “units” in return, in order to fund the “Islamic Scheme” or uphold its credit situation. “Islamic financial instruments” : Financial instruments of equal value, issued and traded in accordance with the Islamic Sharia rules, representing joint stakes in the ownership of in kind properties, utilities, specific project or investment activity. “Speculation” : An agreement between the employer and the speculator, whereby the first puts down his/her money, and the latter his/her work for the purpose of splitting the profits according to the agreement.

Article 2: Taking into consideration the supervisory authority of Banque Du Liban over Islamic banks,
It is not allowed to establish, or contribute in the establishment of an “Islamic Investment Fund” or “Islamic Investment Company”, except by the following Schemes working in Lebanon:
1- Islamic banks
2- Companies specialized in the management of “Islamic Schemes”.
Article 3: The management contract signed between the “Administrator” and the management of the “Islamic Investment Company”
should include, explicitly and accurately, at least, the following items:
1- The rights and obligations of the “Administrator”, particularly, an explicit mention of the exclusive right of the “Administrator” to manage the operations of the “Islamic Investment Company”. 2- The term of the contract. 3- Any termination, amendments, or cancellation of the contract.
Article 4: The “Administrator” must appoint a legal auditing body or legal consultant for the “Islamic Scheme”, in order to set forth
legal rules for the management of the investment of the “Islamic Scheme”, without prejudice to the enforced laws and regulations.
Article 5: In addition to any other information required by the regulations and decisions on Collective Investment Schemes, the
prospectus should include, in particular, the following information:
1- The type and activity of the “Islamic Scheme”, along with the main investment policies governing its activities, investments goals behind its creation, as well as the explicit mention that the “Islamic Scheme” was created in conformity with the Sharia rules. 2- The accounting policy for the valuation of investments, receivables, financing operations and other assets.

3- The accounting policy to be adopted for the confirmation of income. 4- The accounting policy to be adopted for covering the “Islamic Scheme” establishment costs. 5- The principles governing the restoration, by the investor, of some or all of his/her units. 6- The contractual relationship between the “Islamic Scheme” and the managing party or parties, as needed. 7- The principles governing the purchase and sales operation, by the “Islamic Scheme”, of assets belonging to the “Administrator”, or those which he has an interest in. 8- The principles governing the joint operations between the “Administrator” and “Islamic Scheme”, for financing some or all of the “Islamic Scheme” operations. 9- The principles governing the investment operations that the “Administrator” might carry out in the “Islamic Scheme” he/she manages. 10- The “Administrator’s” potential fee, which can be either deducted or calculated, exclusively, based on a known proportion of the “Islamic Scheme’s” profits, of the contributions’ value, or of the value of the “Islamic Scheme’s” assets. 11- The principles governing the investment operation carried out by the “Islamic Scheme” in another “Islamic Scheme” managed by the “Administrator”. 12- The principles of the evaluation of the “Islamic Scheme’s” assets. 13- How to act in the case of a profit not in conformity with the Sharia, if it occurred. 14- Determining whether the Zaqat (almsgiving) is the responsibility of the units’ owners or that of the “Islamic Scheme”, in which case, the “Islamic Scheme” shall declare the value of the Zaqat due by each unit. 15- Whether or not the “Islamic Scheme” shall receive any allocations in return for its commitments. 16- The term and conditions for the cancellation of the “Islamic Scheme”.

Article 16: The “Administrator” shall:
1- Organize the financial statements of the “Islamic Scheme”, based on the templates (1), (2), (3), (4), (5), (6), (7), (8) and (9) attached to this decision. 2- Provide the CMA with the above-mentioned statements prior to the end of April.
Article 7: In addition to the provisions of this decision, all the provisions, regulations and principles pertaining to the Collective
Investment Schemes shall be applied to the Islamic Collective Investment Schemes, unless otherwise mentioned in another law.
Article 8: Any person violating the provisions of this decision shall be subject to the administrative sanctions provided for in the
observed laws and regulations, particularly those stated in Law 161 of August 17, 2011 (on Capital Markets).
Article 9: This decision shall be published in the Official Gazette, and shall enter into force as of March 3, 2014.
Beirut, February 13, 2014
Chairman of the CMA/ Governor of the
Banque du Liban
Riad Toufic Salameh
(Signature)

Annex 1
Charts of Accounts
Islamic Collective Investment Schemes
Category 1
Private capitals accounts
Category 2
Fixed assets accounts
Category 3
Financial portfolio accounts
Category 4
Accounts with others
Category 5
Financial accounts
Category 6
Costs accounts
Category
Revenues accounts

• Capital
   Capital at the beginning of the cycle
   Issuance and re-purchases
• Issuance
• Re-purchases
• Capital margins
• Fees
   Underwriting fees
   Re-purchase fees
• Fees redistribution
   From underwriting operations
   From re-purchase operations
• Valuation variance fluctuations (*)
   Exchange variance
   Operations on securities
• Purchase costs
• Sales costs
   Securities overflows and shortfalls
• Securities overflows
  (*)
• Securities shortfalls
  (*)
   Receivables from performance surety
• Profit re-cycling
• Cycle incomes
• Physical
  fixed assets
• Intangible
  fixed assets
• Financial
  fixed assets
• Fixed
  assets depreciatio n
• Shares and similar
  securities listed on regulated markets
  (*)
• Other listed
  financial securities
  (*) (Islamic deposit certificates…etc.)
• Collective
  investment Schemes shares and stakes
  (divided into registered and unregistered Schemes on regulated markets)
• Financial
  instruments (*)
• Temporary
  purchase and sales operations on financial securities (*)
• Other financial
  securities (*)
• Portfolio valuation
  variances (divided according to the type of securities and
• Creditors
  and associated accounts

Underwriting operations to be settled

• Purchases
  with deferred settlement

• Required
  monetary margins

• Debtors and
  associated accounts
  (divided by type of operation)

• Employees
  and related accounts

• Social
  security and other social institutions

• Public sector
  and other public

• Banks and financial
  institutions
   Call accounts
   Investment accounts
   Stock exchange market and other mediators  Other financial Schemes  Current revenues

• Financial operations
  costs (*)

• Operational costs
   Taxes and fees
   Employees costs
   Other current operational costs
   Exceptional costs
   Costs allocations stated in the balance sheet  Depreciation allocations

• Financial
  operation revenues
  (*)

• Other
  revenues

• Cycle
  revenues settlement

• Advance
  payments from profits’ stakes

• Settlement accounts  Re-cycled profit settlement  Cycle revenues settlement
  (under distribution) operations) -
  Valuation variances of sales operations of securities with redemption rights - Sales operations of transferable securities - Borrowed then re - sold securities - Consigned then re - sold securities - Redeemed then re - sold securities - Redeemed then re - sold securities Schemes - Investors and other shareholders - Various debtors and creditors  Vario us debto rs  Vario us credit ors

• Transitional
  accounts - Settlement accounts - Pre

• calculated
  costs - Periodic cost distribution accounts () Divided by assets, types of financial securities and operations on securities . () Divided by type, while taking into account the current revenues accounts, when applicable. () Divided by type of operation s . () Divided by type of operation s .

Annex 2
Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Islamic Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Monthly statement on financial information And development of shares or stakes’ prices As on //____ (Values are in Thousands of Lebanese Pounds or foreign currency units) a) Financial information Amounts 1- Share or stake price at the end of the previous month 2- Share or stake price at the end of the current month 3- Basic value of the Islamic Scheme 4- Market value of the Islamic Scheme at the end of the month b) Shares or stakes’ price development during the month Date Shares or stakes’ price

Signature of the Managing Company

Annex 3
Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Islamic Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Half-yearly statement On the distribution of shares or stakes As on //____ (Values are in Thousands of Lebanese Pounds or foreign currency units) Current period Previous period Resident Non￾resident Total Resident Non￾resident Total 1- Number of shares or stakes at the end of the period

• Including those whose ownership by a natural or juridical person or one
  economic group exceeds 10% of the total shares or stakes of the Scheme 2- Total underwriting amounts
• Including those whose underwriting by any person or group exceeds 10%
  of the total shares or stakes of the Scheme 3- Total value of the re-purchased shares or stakes 4- Distributed shares of profits or advance payments 5- Sales value of the share or stake at the end of the period Signature of the Managing Company Signature of the auditors

Annex 4
Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Islamic Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Half yearly statement On the distribution of the net assets As on (Values are in Thousands of Lebanese Pounds or foreign currency units) Category Amounts Ratio of the total of each category to the total assets Ratio at the end of the previous period Resident Non￾resident Total 1- Shares and similar securities

• In banks and financial institutions
  including: those listed on regulated markets
• In the non-financial private sector
  including: those listed on regulated markets 2- Deposit certificates
• Purchased from Banque du Liban
• Purchased from international issuing institutions
• Purchased from banks
• Other
  3- Collective Investments Schemes shares or stakes Including: those listed on regulated markets

4- Government and Lebanese and non-Lebanese Islamic instruments

• Government instruments
• Lebanese Islamic instruments
• Non-Lebanese Islamic instruments
• Other financial instruments
  5- Other transferable securities (*)
  6- Total purchased portfolio (1+2+3+4+5) including: those with the custodian 7- Debtor receivables (+) 8- Creditor receivables (-) 9- Operations with other banks and financial institutions + or (-)
• Deposits
• Investments
  10- Miscellaneous + or (-)
  11- Total net assets (6+7+8+9+10)
  12- Number of units (shares or stakes)
  13- Net assets for each unit
  Note: The amounts are listed according to their value in the balance sheet (market or national value), while taking into consideration the valuation variances (between the value on the listing date in the balance sheet and the current value), pre-calculated revenues and current undue revenues, where applicable. (*) In case of their existence, their details shall be attached to the present statement. Signature of the Managing Company Signature of the auditors

Annex 5
Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Islamic Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Final balance sheet As on Assets Last cycle Previous cycle Lebanese Pounds Foreign Total Lebanese Pounds Foreign Total 1- Net fixed assets 2- Investments portfolio – Purchased (*) 2-1 Shares and similar securities

• Purchased for the purpose of trade

• Purchased and available for sale

• Valuation variances
  2-2 Deposit certificates

• Purchased for the purpose of trade

• Purchased and available for sale

• Purchased until maturity

• Valuation variances
  2-3 Collective Investment Schemes shares or stakes

• Purchased for the purpose of trade

• Purchased and available for sale

• Valuation variances
  2-4 Instruments

• Purchased for the purpose of trade

• Purchased and available for sale

• Purchased until maturity

• Valuation variances
  2-5 Other transferrable securities

• Purchased for the purpose of trade

• Purchased and available for sale

• Purchased until maturity

• Valuation variances
  3- Debit receivables and other debtors
  4- Cash funds
  Total assets
  (*) Taking into consideration the undue current revenues and pre-calculated revenues. Payables Last cycle Previous cycle Lebanese Pounds Foreign Total Lebanese Pounds Foreign Total 1- Private capitals

• Capital

• Re-cycled previous incomes (1)

• Re-cycled incomes settlement account (1)

• Capital margins

• Incomes (2)

• Capitalizable (3)

• Allocable (4)

• Distributable (3)
  Total private capitals
  2- Non-Islamic earnings
  3- Investments portfolio – Sold
  3-1 Temporary sales or with the right of redemption of financial securities

• Receivables representing loaned financial securities

• Receivables representing financial securities granted with the right of
  redemption
  3-2 Sales operations of transferable securities (5) 4- Debit receivables and other debtors 5- Other payables Total payables

Off balance sheet
1- Bonds to be delivered
2- Commitments made based on mutual consent 3- Other commitments (1) Directly included in capitalized Schemes’ capitals. (2) Following the settlement of the cycle’s profits, and the inclusion of the advance distribution during the cycle, if it takes place. (3) Only applies to the capitalized collective investment Schemes, or those with distributable revenues. (4) Based on the policy adopted within the Islamic Scheme. (5) Loaned, consigned values or values with the right of redemption then re-sold. Signature of the Managing Company Signature of the auditors

Annex 6
Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Yearly income chart And the development of the net assets From ….. Until …… Amounts a) Income chart Last cycle Previous cycle 1- Financial operations revenues () 1-1 Shares and similar securities revenues 1-2 Deposit certificates revenues 1-3 Financial instruments revenues 1-4 Collective investment Schemes’ shares or stakes revenues 1-5 Revenues from deposits 1-6 Other financial revenues Total 1 2- Financial operations costs () 2-1 Purchases and temporary sales of securities 2-2 Other financial costs Total 2 Financial operations income (1-2) 3- Other revenues 4- Management fee (in the case of the fund management based on an affidavit) 5- Professional costs 6- Administration costs 7- Depreciation allocations 8- Various costs

Net investment income or loss
9- Realized and/or unrealized profits or losses from the investments 9-1 Net realized profits or losses from the investments 9-2 Change in the unrealized overflow or shortfall of the investments value Net profits or losses from the investments Net income or loss before the allocation of the Islamic Scheme Administrator’s cut 10- Cut of the Islamic Scheme Administrator Income Capitalizable Allocable Distributable (*) Taking into consideration the undue current interests, where applicable. Amounts b) Development of the net assets Last cycle Previous cycle 1- Net assets at the beginning of the cycle 2- Underwritings ( including the fees collected from the Islamic Scheme) 3- Value of the re-purchased shares and stakes (except for the fees collected from the Islamic Scheme) 4- Investments value overflow 5- Investments value shortfall 6- Exchange variance + or (-) 7- Investments valuation variance changes + or (-) 8- Supply changes due to the decrease of the Islamic Scheme’s share value in companies under liquidation + or (-) 9- Distribution of the last cycle’s profits 10- Net cycle income prior to the settlement + or (-) 11- Advance payables during the cycle 12- Other items () + or (-) 13- Net assets at the end of the cycle () In case of their existence, their details shall be attached to the present statement. Signature of the Managing Company Signature of the auditors

Annex 7
Template of the Islamic Collective Investment Scheme’s summary 1- Name and SEDOL number of the “Islamic Scheme” 2- Nationality 3- Legal statute: (Investment Company, Trust…etc.) 4- Managing company of the Islamic investment Scheme: activities and location (The possibility of appointing a third party to carry on its operations) 5- Company in charge of setting up an investment strategy and follow-up (if applicable): activities, location and date of licensing 6- Marketing company (if applicable): activities, location and date of licensing 7- Investment consultant (if applicable): activities and location 8- Custodian: activities, location, tasks and date of licensing 9- Auditing commission: activities and location 10- Islamic Collective Investment Scheme’s nature: individual fund – umbrella fund…etc. 11- Establishment date 12- Licensing date by the competent authorities in the country of origin 13- Summary of the adopted investment policy (place, investment sector…etc.) 14- Yearly accounts closing date 15- Special risks (if applicable) – Special Risk Warning 16- Costs and fees stemming from the investment in the “Islamic Scheme”:

• Subscription fee
• Early subscription termination fee
• Yearly subscription fee
• Additional fee for the marketing operations in Lebanon (if applicable)
  17- Currency of the “Islamic Scheme”
  18- “Promoter” in Lebanon
  19- Marketing method in Lebanon
  20- Other remarks

Annex 8
Monthly statement of the performance and price development of the stocks or shares And the size of subscriptions As of --/--/---- Name of the Islamic Collective Investment Scheme __________________________________ Legal nature of the Scheme Fund/Company Managing Company ___________________________________ Custodian______________________ Auditor _________________________ Currency Price Performance Subscription Profits and losses (half-yearly) Share or stake price at the end of the previous month Share or stake price at the end of the current month Basic value Market value at the end of the month Monthly performance Quarterly performance Year-to-date performance Primary marketing subscription Subscription balance at the end of the month Number of subscribers Realized Unrealized Signature of the Managing Company Signature of the auditors