Guidance Note Re Annual Shari'ah Report of Internal Shari'ah Supervision Committee

CBUAE Classification: Public
GUIDANCE NOTE RE ANNUAL SHARI’AH REPORT OF
INTERNAL SHARI’AH SUPERVISION COMMITTEE*
*This document was drafted in Arabic and translated to English. In case of any differences in interpretation, the Arabic version shall prevail.

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TABLE OF CONTENTS
Page
Subject
Article (1) Introduction
Article (2) Objective
Article (3) Scope of Application
Article (4) General Requirements for
Issuing the Annual Shari’ah Report
Article (5) Template for the Annual
Shari’ah Report

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Article (1)
Introduction
1.1 This Guidance Note Re Annual Shari’ah
Report of Internal Shari’ah Supervision
Committee (“Guidance Note” or “Note”) complements the requirements outlined in:
a. Decretal Federal Law No. (14) of 2018
Regarding the Central Bank and
Organization of Financial Institutions and Activities; and b. Standard Re Shari’ah Governance for Islamic Financial Institutions issued by the Central Bank. with the aim to promote development of the banking system and to ensure its effectiveness and efficiency. 1.1
1.2 Islamic Financial Institutions (“IFIs”) are
required to have Shari’ah governance policies and mechanisms to ascertain that Annual Shari’ah Report that is issued by the Internal Shari’ah Supervision Committee (“Annual Shari’ah Report”) is compliant with requirements outlined in this Guidance Note, and applicable standards and regulations. 2.1
1.3 Where the Guidance Note contains a
stipulation (in an article) to provide information, or undertake certain measures, or address particular terms, as a minimum requirement, the Central Bank may impose (new) requirements additional to those specified in the relevant article (of the Guidance Note). 3.1
Article (2)
Objectives
2.1 The Guidance Note contains guidance
aimed at facilitating implementation of the requirements related to the issuance of Annual Shari’ah Report. 1.2

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2.2 The Guidance Note provides clarity on the
supervisory expectations with respect to
Annual Shari’ah Report.
2.2
Article (3)
Scope of Application
3.1 The Guidance Note applies to all IFIs. جميع على اإلرشادية المذكرة هذه تنطبق
1.3
3.2 The Guidance Note must be read in
conjunction with the standards and resolutions issued by Higher Shari’ah Authority (HSA) and notified to IFIs. 2.3
Article (4)
General Requirements for Issuing the
Annual Shari’ah Report
4.1 The Annual Shari’ah Report represents
annual disclosure of the Internal Shari’ah
Supervision Committee (ISSC) on the level of IFI’s compliance with Islamic Shari’ah. Accordingly, responsibility for preparing the annual Shari'ah report rests with the ISSC of IFI within the mechanisms and requirements stipulated in the Guidance Note. 1.4
4.1 The Annual Shari’ah Report should be
presented at the general assembly in accordance with the applicable regulatory requirements. 2.4
4.3 The Annual Shari’ah Report shall be
submitted to HSA for review and approval prior to its submission at the general assembly. 3.4
4.4 The Annual Shari’ah Report must be
submitted to the HSA, no later than two (2) months from end of the financial year. 4.4

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4.5 The ISSC must verify accuracy and validity
of all information in the Annual Shari’ah
Report before its submission to the HSA.
5.4
4.6 The Board must ensure that the Annual
Shari’ah Report is submitted to HSA for review and approval prior for its submission at the general assembly. 6.4
4.7 The ISSC must ascertain that all
information required to be stated in the
Annual Shari’ah Report (as stipulated in the template in article No. 5.3) are included in the designated places of the report before submitting it to HSA. 7.4
4.8 The ISSC must ensure that all duties
fulfilled by the ISSC, as outlined in the
Annual Shari’ah Report, are well documented for audit purposes.
8.4
4.9 IFI shall publish the Annual Shari’ah
Report in the IFI’s disclosures of the financial statement and other available means. 9.4
Article (5)
Template for the Annual Shari’ah
Report
5.1 Template of the Annual Shari’ah Report (as
per below) represents the principal information and disclosures, and minimum requirements for information that should be included in the report. 1.5
5.2 The ISSC may add other information to the
Annual Shari’ah Report, if necessary, according to the template in the Guidance Note. 2.5

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(5/3) Template for the Annual Shari’ah Report (English) Annual Report of the Internal Shari’ah Supervision Committee of (name of the financial institution) Issued on: (issue date) To: Shareholders of (name of the Financial Institution) (“the Institution”) After greetings, Pursuant to requirements stipulated in the relevant laws, regulations and standards (“the Regulatory Requirements”), the Internal Shari’ah Supervision Committee of the Institution (“ISSC”) presents to you the ISSC’s Annual Report (in case of Islamic windows add: (regarding Shari’ah compliant businesses and operations of the Institution)) for the financial year ending on 31 December --------- (“Financial Year”).

1. Responsibility of the ISSC
   In accordance with the Regulatory Requirements and the ISSC’s charter, the ISSC’s responsibility is stipulated as to:
   a. undertake Shari’ah supervision of all businesses, activities, products, services, contracts, documents and business charters of the Institution; and the Institution’s policies, accounting standards, operations and activities in general, memorandum of association, charter, financial statements, allocation of expenditures and costs, and distribution of profits between holders of investment accounts and shareholders (“Institution’s Activities”) and issue Shari’ah resolutions in this regard, and b. determine Shari’ah parameters necessary for the Institution’s Activities, and the Institution’s compliance with Islamic Shari’ah within the framework of the rules, principles, and standards set by the Higher Shari’ah Authority (“HSA”) to ascertain compliance of the Institution with Islamic Shari’ah. The senior management is responsible for compliance of the Institution with Islamic Shari’ah in accordance with the HSA’s resolutions, fatwas, and opinions, and the ISSC’s resolutions within the framework of the rules, principles, and standards set by the HSA (“Compliance with Islamic Shari’ah”) in all Institution’s Activities, and the Board bears the ultimate responsibility in this regard.
2. Shari’ah Standards
   In accordance with the HSA’s resolution (No. 18/3/2018), and with effect from 01/09/2018, the ISSC has abided by the Shari’ah standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as minimum Shari’ah

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CBUAE Classification: Public requirements, in all fatwas, approvals, endorsements and recommendations, relating to the Institution’s Activities without exception.
3. Duties Fulfilled by the ISSC During the Financial Year
The ISSC conducted Shari’ah supervision of the Institution’s Activities by reviewing those Activities, and monitoring them through the internal Shari’ah control division or section, internal Shari’ah audit, and (if applicable) external Shari’ah audit, in accordance with the ISSC’s authorities and responsibilities, and pursuant to the Regulatory Requirements in this regard. The ISSC’s activities included the following:
a. Convening (number) meetings during the year. b. Issuing fatwas, resolutions and opinions on matters presented to the ISSC in relation to the Institution’s Activities.
c. Monitoring compliance of policies, procedures, accounting standards, product
structures, contracts, documentation, business charters, and other documentation submitted by the Institution to the ISSC for approval. d. Ascertaining the level of compliance of allocation of expenditures and costs, and distribution of profits between investment accounts holders and shareholders with parameters set by the ISSC. e. Supervision through the internal Shari’ah control division or section, internal Shari’ah audit, and (if applicable) external Shari’ah audit, of the Institution’s Activities including supervision of executed transactions and adopted procedures on the basis of samples selected from executed transactions, and reviewing reports submitted in this regard. f. Providing guidance to relevant parties in the Institution – to rectify (where possible) incidents cited in the reports prepared by internal Shari’ah control division or section, internal Shari’ah audit, and/or (if applicable) external Shari’ah audit – and issuing of resolutions to set aside revenue derived from transactions in which non-compliances were identified for such revenue to be disposed towards charitable purposes. g. Approving corrective and preventive measures related to identified incidents to preclude their reoccurrence in the future. h. Specifying the amount of Zakat due on each share of the Institution (if applicable).
i. Communicating with the Board and its subcommittees, and the senior management of
the Institution (as needed) concerning the Institution’s compliance with Islamic Shari’ah. j. (add other works that the ISSC wants to mention in this report) The ISSC sought to obtain all information and interpretations deemed necessary in order to reach a reasonable degree of certainty that the Institution is compliant with Islamic Shari’ah. (the phrase “External Shari’ah audit” is included in the report if applicable, otherwise it should be deleted.)
4. Independence of the ISSC
The ISSC acknowledges that it has carried out all of its duties independently and with the support and cooperation of the senior management and the Board of the Institution. The ISSC received the required assistance to access all documents and data, and to discuss all

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CBUAE Classification: Public amendments and Shari’ah requirements. (Factors that have affected independence, if any, should be mentioned).
5. The ISSC’s Opinion on the Shari’ah Compliance Status of the Institution
Premised on information and explanations that were provided to us with the aim of ascertaining compliance with Islamic Shari’ah, the ISSC has concluded with a reasonable level of confidence, that the Institution’s Activities are in compliance with Islamic Shari’ah, except for the incidents of non-compliance observed, as highlighted in the relevant reports. The ISSC also provided directions to take appropriate measure in this regard. (Add a statement on any other breaches to the Shari’ah provisions, resolutions and controls established by the Higher Shari’ah authority, if applicable) The ISSC formed its opinion, as outlined above, exclusively on the basis of information perused by the ISSC during the financial year. Signatures of members of the Internal Shari’ah Supervision Committee of the Institution Type of Signature Membership Member’s Name Type of Signature Membership Member’s Name Type of Signature Membership Member’s Name Type of Signature Membership Member’s Name Type of Signature Membership Member’s Name (End of the Template)