Guidelines for Accredited Shariah Scholars Recognized as Supplementary Service Providers under the SEC Act No. 19 of 2021

GUIDELINES APPLICABLE FOR ACCREDITED SHARIAH SCHOLARS RECOGNIZED AS A SUPPLEMENTARY SERVICE PROVIDER UNDER THE SECURITIES AND EXCHANGE COMMISSION OF SRI LANKA ACT NO. 19 OF 2021 General interpretation 1. The words and terms defined in the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021 shall, unless the context otherwise requires have the same meanings as assigned to them in the said Act. “Accredited Shariah Scholar” shall mean a person recognized as a Supplementary Service Provider under the SEC Act and renders the duties and services stipulated by these Guidelines. “Shariah Compliant Debt Securities” shall mean Debt Securities of an entity, such as Sukuk, which are certified as product compliant with Principles and Rules of Shariah for investment by a minimum of two (02) Accredited Shariah Scholars who fall under the Guidelines set out herein. “Whitelist Equity Index” shall mean an index comprising of equity securities that are in line with the Standard Shariah Compliant Screening Methodology and also approved by a minimum of two (02) Accredited Shariah Scholars who fall under the Guidelines set out herein prior to publishing or being circulated to clients. “Standard Shariah Compliant Screening Methodology” shall mean a methodology developed by the Accredited Shariah Scholars and consists of a set of qualitative and quantitative components. “Commission” shall mean the Securities and Exchange Commission of Sri Lanka established in terms of the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021. “SEC Act” shall mean the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021. Applicability 2. The Guidelines set out herein shall apply to an Accredited Shariah Scholar who provides services to a market institution, market intermediary, company listed on an Exchange licensed by the SEC, an unlisted company which has made a public offer of securities in accordance with Section 80 or Section 81 of the SEC Act or a Collective Investment Scheme approved by the SEC.

3. Every Accredited Shariah Scholar shall comply with:
   (a) the requirements set out herein and any amendments thereto; (b) provisions of the SEC Act; (c) directives, rules, regulations and / or Guidelines issued from time to time by the Commission; and (d) all requirements and practices as more fully contained in the Code of Ethics for Islamic Finance Professionals issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Guiding Principles on Shariah Governance Systems for Institutions Offering Islamic Financial Services by the Islamic Financial Services Board (IFSB).
4. The Commission may waive compliance with any of the Guidelines set
   out herein in circumstances it deems appropriate.
5. An entity seeking to list Shariah Compliant Debt Securities on an
   Exchange licensed by the SEC shall obtain certified approval for the product’s compliance with Principles and Rules of Shariah from two (02) Shariah Scholars who are accredited as Supplementary Service Providers under the Guidelines set out herein.
6. Prior to publishing or circulating a Whitelist Equity Index among clients
   and in the public domain any Market Institution or Market Institution should:
   (a) Adopt the Standard Shariah Screening Methodology developed by the Accredited Shariah Scholars of the SEC. (b) Obtain approval that the Whitelist Equity Index is in line with the Standard Shariah Screening Methodology and the Principles and Rules of Shariah from two (02) Shariah Scholars who are accredited as Supplementary Service Providers under the Guidelines set out herein. Duties and services of an Accredited Shariah Scholar
7. The scope of work for an Accredited Shariah Scholar shall include:
   (a) Developing and/or if required revising a Standard Securities Screening Methodology for Whitelist Indices; (b) Certifying that a Whitelist Equity Index is in compliance with the Standard Securities Screening Methodology developed by the Accredited Scholars and with Principles and Rules of Shariah;

(c) Certifying that the Shariah Compliant Debt Securities proposed to be listed on an Exchange licensed by the SEC by an entity is compliant with Principles and Rules of Shariah and is consistent with recognized global standards such as standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB); (d) Providing expert advice on matters in relation to Shariah Compliant Debt Securities proposed to be listed, including matters relating to documentation (which include the deed and prospectus/introductory document), structure, features, investment instruments and to ensure that all aspects of the product is compliant with Rules and Principles of Shariah; (e) Providing advice on how the issuing entity should address and rectify any Shariah non - compliance status at the point of listing of the Shariah Compliant Debt Security; (f) Advising on any matter relating to listed Shariah Compliant Debt Securities and Whitelist Equity Indices; and (g) Any other function as may be determined by the SEC from time to time. Submission of reports and maintenance of records
8. An Accredited Shariah Scholar shall:
(a) submit any information, clarification or explanation in relation to services rendered by him/her to any entity referred to in Section 2 of these Guidelines upon request of the Commission as provided for in Section 169 of the SEC Act; (b) The Commission may issue a directive to an Accredited Shariah Scholar to take any corrective action as determined by the Commission where the Commission is of the view that the services rendered by the Accredited Shariah Scholar to any entity referred to in Section 2 of these Guidelines is likely to cause harm to the interests of any investor as provided for in Section 169 of the SEC Act; and (c) Ensure that all documentation for the work undertaken on behalf of an entity is maintained for a minimum period of six (06) years.

Qualifications and experience of an Accredited Shariah Scholar
9. An Accredited Shariah Scholar who is involved in providing services to
any entity referred to Section 2 of these Guidelines shall possess the following minimum qualifications and experience:
(a)
i. A Bachelor’s Degree from a recognized university in the fields
of Economics/ Finance/ Accountancy/ Commerce/ Banking/ Law; or
ii. Post Graduate qualifications in Shariah/Islamic
Jurisprudence/Islamic Finance from a recognized university.

and in addition to i or ii,
iii. A professional qualification from a recognized standard setting
organization for the global Islamic finance industry acceptable to SEC would be an added advantage. (b) Proven competence and expertise in jurisprudence of financial transactions; (c) Sound comprehension in finance in general and Islamic finance in particular and should have worked in the spectrum of Islamic finance and/or Shariah supervision for a minimum of five (05) years either in direct employment or advisory level; (d) Good knowledge of the capital markets and the legal and supervisory framework related to Islamic financial activities; (e) Excellent knowledge of Arabic and good working knowledge of English; and (f) Good oral and written communication skills. Governance and conflicts of interest
10. An Accredited Shariah Scholar providing services to any entity
referred to Section 2 of these Guidelines shall at all times follow and abide by the relevant legislation, regulations, other technical standards and code of conduct/ethics of recognized global standard setting organizations for the Islamic financial industry.
11. An Accredited Shariah Scholar shall not knowingly perform services
to any entity referred to Section 2 of these Guidelines involving an actual or potential conflict of interest unless:
(a) the Accredited Shariah Scholar’s ability to act fairly is unimpaired; (b) there has been a written disclosure of the conflict to all present and known prospective clients whose interests would be affected by the conflict.

Fit and Proper Criteria 12. Fit and Proper Criteria applicable to an Accredited Shariah Scholar shall include the below:
(a) An individual proposed to be appointed, elected or nominated or who intends to continue to serve in the capacity of an Accredited Shariah Scholar shall submit an affidavit to the issuing entity affirming that such person is not subject to any of the infirmities morefully described in these Guidelines prior to such individual being appointed and/or reappointed. (b) The information contained in the affidavit shall not be misleading or vague and shall contain a statement that the contents are true and accurate. (c) The Accredited Shariah Scholar shall immediately inform of any matter that may disqualify the appointment or the continuation in office and the final decision shall be made by the issuing entity in respect of such matter. (d) Honesty, integrity and reputation The Accredited Shariah Scholar shall not:
i. be a person who has been found guilty/held responsible by
a court of law in Sri Lanka or abroad for the commission of any criminal offence;
ii. be a person who has been found guilty/held responsible by
a court of law in Sri Lanka or abroad for the commission of a capital market offence or against whom an offence has been compounded in terms of the SEC Act during a period of three (03) years immediately preceding the date of the application;
iii. have been a Key Management Person of a body corporate
who has been found guilty/held responsible by a court of law in Sri Lanka or abroad for the commission of any criminal offence or capital market offence having proved to have been committed with the knowledge or involvement or negligence attributable to such person;
iv. be a person who has been subject to an administrative
sanction by the Commission during a period of three (03) years immediately preceding the date of the application;
v. be a Key Management Person of a company, partnership or
other organization whose license has been suspended or cancelled by the Commission for violating any provision of the SEC Act or any rules or regulations made thereunder;

vi. be a person who has been censured, disciplined, suspended
or refused membership or registration by the Commission and any other regulatory authority in Sri Lanka or elsewhere during a period of three (03) years immediately preceding the date of the application;
vii. be a person against whom a finding has been made by the
Commission or any other regulatory/supervisory authority/professional body in Sri Lanka or abroad that such individual has committed any act which involves fraud, deceit or dishonesty;
viii. be a person who has been disqualified from acting as a
director of a company, or has been dismissed or requested to resign from any position or office due to mismanagement of funds or the commission of financial fraud by the Commission, any other regulatory body or professional body;
ix. be a person against whom an inquiry and/or investigation
by the Commission and/or an Exchange or any other regulatory/professional body in Sri Lanka or elsewhere is presently pending for the commission of suspected capital market offences or any matter that involves fraud, deceit or dishonesty; and/or
x. be a person who has contravened any written law enacted
for the protection of the members of the public against financial loss due to dishonesty or malpractice of such person. (e) Financial soundness - The Accredited Shariah Scholar shall not:
i. have proceedings instituted to be declared bankrupt or
have been declared bankrupt and/or had assets sequestered;
ii. have been subject to any judgment debt or award in Sri
Lanka or abroad that remains unpaid in whole or in part;
iii. have been a person of a company in a position that
exercises significant influence in a company that:

1. has been subject to any judgment debt or award in
   Sri Lanka or abroad that remains unpaid in whole or in part; or
2. has in Sri Lanka or abroad, made any arrangements
   in composition with its creditors, filed for bankruptcy, been declared bankrupt, had assets sequestered, involved in winding-up proceedings ordered by a court of law or been involved in proceedings relating to any of the foregoing.

iv. have been associated with any illegal activities or been
subject of a court conviction involving financial integrity and moral turpitude; and/or
v. have been subjected to any administrative sanctions,
adverse findings any settlement in civil or criminal proceeding by any regulatory authority. (f) (f) Competence and capability - The Accredited Shariah Scholar shall:
i. not have been declared by a court of competent jurisdiction
in Sri Lanka or abroad to be of unsound mind;
ii. possess the required qualifications and experience;
iii. have satisfied the relevant training and competence
requirements in relation to the regulated function the person performs or intends to perform;
iv. possess adequate time to perform the regulated function and
meet the responsibilities associated with that function;
v. have not contravened any written law enacted for the
protection of the members of the public against financial loss due to incompetence of such person; and/or
vi. have an impeccable track record, good conduct and
behaviour particularly with regard to credibility, integrity and reputation in professional and financial transactions.