Instruction No. 70/2023 on Sharia Compliance Boards for Islamic Finance Principles and Rules for Regional UMOA Market Actors and Issuers

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INSTRUCTION NO. 70 /AMF-UMOA/2023

RELATIVE TO THE SHARIA COMPLIANCE BOARDS ON PRINCIPLES AND RULES OF ISLAMIC FINANCE FOR ACTORS AND ISSUERS ON THE REGIONAL UMOA FINANCIAL MARKET

The West African Monetary Union Financial Markets Authority (AMF-UMOA)

WHEREAS the revised Treaty of the West African Monetary Union (UMOA) dated July 12, 2019, entered into force on October 1, 2022, modifying the name of the Regional Council for Public Savings and Financial Markets (CREPMF) to the West African Monetary Union Financial Markets Authority (AMF-UMOA);

WHEREAS the Convention of July 3, 1996 establishing the Regional Council for Public Savings and Financial Markets, particularly its Annex on the composition, organization, functioning, and powers of the Council;

WHEREAS General Regulation No. 001/97 of November 28, 1997 on the Organization, Functioning, and Control of the regional financial market of UMOA, amended by Decision No. CM/15/09/2022 of September 30, 2022;

WHEREAS Regulation No. 10/2022/CM/UEMOA on Islamic financial instruments, self-managed Sukuk issuing companies, and Sukuk issuing funds in UMOA;

WHEREAS Decision No. 004 of April 29, 2021/CM/UMOA on the appointment of the President of the Regional Council for Public Savings and Financial Markets;

WHEREAS the deliberations of AMF-UMOA during its session on November 18, 2022;

HAS ADOPTED:

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Instruction No. 70 /AMF-UMOA / 2023

Article 1: Definitions

For the purposes of this Instruction, the following terms shall apply:

Certificate of Compliance: opinion issued by the Compliance Board attesting and certifying that a product or financial instrument is compliant with the Principles and Rules of Islamic Finance.

Compliance Board or Sharia Board: board of experts designated by a market actor attesting that Financial Instruments are compliant with the Principles and Rules of Islamic Finance.

Serious Misconduct: a fault is considered serious if the facts attributed to a Compliance Board member are contrary to the functioning of the Compliance Board or to the ethics expected under Sharia, thereby preventing their continued membership.

Gross Misconduct: gross misconduct is characterized by the intent to harm the employer, implying a deliberate will to cause prejudice in the commission of the fault.

Principles and Rules of Islamic Finance: principles and rules derived from Muslim commercial law governing, in particular, contracts, property, and commercial transactions recognized by the applicable UMOA or Member State national regulations, and failing that, those recognized by international Islamic finance standardization bodies, as validated by the Compliance Board.

Article 2: Object

This Instruction sets forth the rules regarding the organization, functioning, and operational procedures of the Sharia Compliance Board, referred to as the Compliance Board or Sharia Board.

Market actors in the regional financial market referred to in Articles 7 and 72 of the amended General Regulation on the Organization, Functioning, and Control of the UMOA regional financial market, who intend to exercise activities related to structuring, origination, marketing, or distribution of Islamic finance instruments, as well as persons wishing to issue Islamic finance securities as defined in Article 112 of the same General Regulation, must obtain the opinion of their respective Sharia Compliance Board.

Article 3: Functions and Powers of the Compliance Board

The Compliance Board issues opinions and formulates recommendations based on the Principles and Rules of Islamic Finance as interpreted by it, within the limits of applicable regulations for financial instruments and market actors.

It is responsible for:

• advising the market actor or issuer on compliance with Islamic finance principles and rules;
• examining and validating contractual documentation and various procedures related to operations, transactions, products, and services carried out or marketed by a market actor or Islamic finance issuer;
• ruling and issuing an independent opinion in the form of a Certificate of Compliance for products and services marketed by the market actor within its Islamic finance activity or by the issuer;
• issuing, where applicable, opinions and recommendations to ensure that instruments, documents, and procedures comply with Islamic finance principles in accordance with current regulations;
• proposing corrective measures for transactions presenting anomalies or considered non-compliant with Islamic finance principles and rules;
• giving its opinion on the annual Sharia compliance audit report prepared each year by a compliance auditor or specialized firm;
• preparing and presenting an annual Sharia compliance report on the market actor's activities to its general assembly or management company, where applicable, or any other authorized body as provided by the statutes.

Article 4: Composition of the Compliance Board

The Compliance Board shall consist of at least three (3) members.

AMF-UMOA may increase or decrease the minimum number of members serving on the Compliance Board based on the level, nature, and complexity of Islamic finance activities.

Article 5: Competencies and Qualifications of Members

Members of the Compliance Board must individually possess the necessary competencies to perform their duties. They must have appropriate training and proven experience in Muslim commercial law, particularly as applied to the financial sector, as well as sufficient knowledge of applicable banking and financial regulations within the Union.

Members must also enjoy good moral standing and not have been convicted, in particular, for offenses related to property or those affecting integrity. They must justify this by producing a criminal record and a certificate of good morals or moral investigation.

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Instruction No. 70 /AMF-UMOA / 2023

Article 6: Appointment of Compliance Board Members

Compliance Board members are appointed by the General Assembly or any other authorized body upon proposal of the deliberative organ of the market actor.

In the context of a securities issuance as provided in the Regulation on Islamic financial instruments, self-managed Sukuk issuing companies, and Sukuk issuing funds in UMOA, Compliance Board members are appointed by the issuer, originator, or investor according to the agreement and needs of the issuance.

Compliance Board members elect a President from among themselves.

Compliance Board members must hold the nationality of a UMOA Member State or benefit from assimilation to nationals of a Member State under an establishment convention.

However, AMF-UMOA may grant, upon duly motivated requests from market actors or issuers, individual exemptions to the preceding provision.

The appointment and dismissal of Compliance Board members, as well as all changes affecting the composition of said Board, must be communicated to AMF-UMOA within ten (10) business days.

Article 7: Term of Office of Members and the President of the Compliance Board

For a Compliance Board established by a market actor, the term of office for its members is three (3) years, renewable once by the General Assembly or authorized body. This indication shall be stated in their letters of appointment.

For a Compliance Board established for a securities issuance under the Regulation on Islamic financial instruments, self-managed Sukuk issuing companies, and Sukuk issuing funds in UMOA, the term of office for members is freely determined by mutual agreement in the letter of appointment. In case of a member's unavailability, they shall be replaced by a new member for the remaining term.

The term of office of the Compliance Board President shall not exceed that of their membership.

Article 8: Remuneration of Compliance Board Members

The remuneration and professional expenses of Compliance Board members are fixed and specified upon the commencement of their term. They are stated in the individual letter of appointment to which the communicated Charter is attached.

Remuneration is fixed and may in no case be indexed to the performance or profitability of the product or operation for which the Compliance Board intervenes.

Furthermore, this remuneration must in no way be conditioned upon or dependent on the opinions issued by Compliance Board members.

The provisions of the preceding paragraph apply to consultants or experts assisting the board, where applicable.

Article 9: Professional Secrecy and Conflicts of Interest

Compliance Board members are bound by professional secrecy regarding all documents and information accessed during the exercise of their functions. They must take all measures to avoid any conflicts of interest during their term.

A conflict of interest is considered any direct or indirect personal interest or direct or indirect personal relationship likely to affect the concerned member's commitment to respect conditions and obligations and impact the proper exercise of the Board's missions, whether they are a member of the Board of Directors or an employee, subscriber or shareholder, or provider of services related to interests other than those provided within the Board.

A member facing a conflict of interest must declare it to the deliberative organ of the market actor or issuing company and abstain from participating in Board meetings, deliberations, or decisions related to the conflict until the deliberative organ rules within ten (10) days following the declaration date.

When a temporary conflict of interest is established, the concerned member receives notification and is invited to abstain from participating in meetings or decisions related to the conflict until its extinction.

When a permanent conflict of interest is established, the concerned member receives notification and is invited to submit their resignation to the deliberative bodies within forty-eight (48) hours following said notification. They shall be replaced by a new member for the remaining term.

Upon learning of a conflict of interest, the deliberative organ or issuing company proceeds with case processing and hears the concerned party, providing an adequate response. If deliberate concealment of the conflict is established, the General Assembly is seized and proceeds with the interested party's dismissal. The said General Assembly fills the vacant seat by appointing a new member.

Article 10: Dismissal of Compliance Board Members

The dismissal of Compliance Board members, duly motivated, is pronounced by the General Assembly or authorized body upon proposal of the market actor's deliberative organ or by the Issuer.

The dismissal of a Compliance Board member may only occur if it is established that the concerned member has committed serious or gross misconduct, or ethical breach in the exercise of their duties.

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Instruction No. 70 /AMF-UMOA / 2023

Article 11: Charter and Letter of Appointment of the Compliance Board

The Compliance Board defines, during its first meeting, in a charter, the following elements:

• scope of members' intervention;
• frequency of meetings necessary for certification;
• remuneration of members;
• term of office;
• appointment of the Compliance Board President;
• and any other useful information.

Each Compliance Board member receives, after the first meeting, an individual letter of appointment to which the Charter is attached.

Article 12: Periodic Meetings of the Compliance Board

Compliance Board members participate in periodic meetings. They are summoned by any means, at least fifteen (15) days before the meeting date, except in cases of urgency, particularly when the Board is called upon to rule on an urgent operation.

The Compliance Board may only validly convene and deliberate with at least two thirds of its members present.

The President sets the agenda and directs the Board's proceedings.

Meetings take place at the seat of the concerned market actor or any other location approved by the summoned parties. Compliance Board members may meet via videoconference or other telecommunication means allowing identification and guaranteeing effective participation.

The Compliance Board may hold extraordinary meetings if circumstances require, particularly upon request by the deliberative organ, executive organ, its President, or two thirds of its members.

If an extraordinary meeting cannot be held before the deadline of the relevant operation, the Compliance Board President issues opinions or recommendations and proposes corrective measures regarding said operation.

Article 13: Secretariat of the Compliance Board

The Compliance Board secretariat is managed by the compliance function officer of the Market Actor or issuing entity, where applicable.

The secretary is responsible for:

• at the President's initiative, summoning Compliance Board members and, where applicable, any other persons to be heard by the Board in the course of its work;
• maintaining the Board's registers, including the register of minutes, opinions, and recommendations;
• ensuring communication between the Board and corporate bodies, establishment staff, and all other parties;
• coordinating the Board's work and arranging meetings, via videoconference where applicable;
• transmitting, disseminating, and explaining the Board's opinions and recommendations to relevant bodies and personnel;
• preparing the annual report on the Board's functioning to be submitted to the executive organ.

Article 14: Decision and Minutes

Decisions of the Compliance Board are taken by a majority of its members. In case of a tie, the President's vote is decisive.

If the President is unable to attend a meeting, members elect a substitute from among themselves to preside.

Compliance Board meetings result in minutes containing the agenda, questions examined, and decisions taken following deliberations.

The minutes highlight the recommendations to be implemented.

The minutes are signed by the President, Secretary, and all members present at said meeting, duly identified.

Article 15: Certificate of Compliance

The Compliance Board issues a Certificate of Compliance for all products, services, transactions, and operations that the Market Actor offers to its clients under its Islamic finance activity or the Issuer in the context of an Islamic financial securities issuance on the regional financial market.

This Certificate of Compliance regarding a product, service, transaction, or operation is issued prior to their availability to clients, based on a detailed study of transactional and commercial documentation, and after thorough analysis of related procedures. It is signed by the Compliance Board members who established it.

Any change affecting said transactional, commercial, or procedural documentation considered significant by the Compliance Board gives rise to the issuance of a new Certificate of Compliance.

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Instruction No. 70 /AMF-UMOA / 2023

Article 16: Minimum Information Stated on the Certificate of Compliance

The Certificate of Compliance must contain the following minimum information:

• name of the concerned product or instrument as well as the name of the entity proposing or issuing it, where applicable;
• confirmation that documents related to the product have been analyzed;
• attestation of compliance of the documents with the Principles and Rules of Islamic Finance;
• date of the Compliance Board meeting;
• names of the members composing the Compliance Board;
• signatures of the Compliance Board members.

Article 17: Validity Period of the Certificate of Compliance

The validity period of the Certificate of Compliance and its renewal and updating procedures are determined by the Compliance Board according to the nature of the certified product or financial instrument. The validity period and renewal frequency are stated on said certificate.

Article 18: Publication of the Certificate of Compliance

Certificates of Compliance concerning products, services, transactions, or operations offered to clients or investors must be published by the market actor in its premises and on its website.

They may be provided to clients or investors upon request on any deemed adequate medium.

Article 19: Documentation

The Compliance Board is authorized to request from the Market Actor or Issuer, their Statutory Auditors, technical partners, and any other person or organization whose assistance may be required, all useful information or supporting documents for the exercise of their functions. The concerned parties are obliged to comply with requests addressed to them.

Article 20: Use of External Expertise

The Compliance Board may request the market actor or issuer to engage third-party experts with expertise in specific areas, including general law, regulation, accounting, taxation, or any other field that will assist in issuing an informed opinion on the compliance of submitted products and securities with Islamic finance principles and rules.

These third-party experts may attend Board meetings without voting rights.

Article 21: Annual Sharia Compliance Audit Report

The Compliance Board issues an opinion on the annual audit report of the Market Actor's activities or the Issuer's securities regarding compliance with Islamic finance principles and rules.

The annual audit report is sent to all corporate bodies of the actor and to AMF-UMOA. Said audit must be conducted by a compliance auditor or specialized firm after approval by the deliberative organ of the market actor or Issuer.

Article 22: Entry into Force

This Instruction takes effect from its signing date. It shall be published wherever necessary.

Done at Abidjan, on February 20, 2023

For the West African Monetary Union Financial Markets Authority (AMF-UMOA), The President

[Signature] Badanam PATOKI

[Seal: West African Monetary Union Financial Markets Authority - The President - 01 BPM 1878 ABIDJAN 01]