1. Ensuring Equal Opportunities
Islamic finance exists in any dual banking system. The meaning of the Principle of proportionality is relative to the application of rules and instructions in proportion to the size and degree of complexity in the industry works, so the private controlling authorities should understand the nature and the size of the risks related to the Islamic banks.
As for Kuwait, the Islamic banks make up about 39% of the banking system, the strong presence of Islamic banks in Kuwait, confirms the effectiveness of the Central Bank of Kuwait’s efforts to emphasize the principle of equal opportunities for banks of both types, as well as multiple options for customers to meet their various banking services needs. Thus, to ensure equal opportunities for Islamic banks, a legal and regulatory framework will be applied.
2. Applying the Basel 3 Reforms
There’s a special challenge related with the reforms of Basel 3, it requires without a doubt, an appreciation work by the supervisory authorities concerned, and which leads to the existence of differences in the specific supervisory applications, and in the applications between different countries, especially in the case of Islamic finance, where different legal interpretations lead to make the task more difficult. Apart from these general concerns, there are a number of practical issues regarding instructed capital adequacy and liquidity within the Basel 3 reforms.
3. Liquidity Coverage Standard
First, the availability of high-quality liquid assets compatible with the provisions of Islamic law presents a big problem that can meet the stringent requirements of the Basel 3 \ Islamic Financial Services Council, second, the provision of high quality and effective liquid assets requires the availability of other infrastructure support, both in terms of liquidity or legality.
4. Applying the Hedge Policies
It is required from the supervisory authorities to complete partial prudential supervision with a complete hedging procedures designed to address the systemic risk. While helping the overall hedge procedures in the foundation to ensure the safety of the financial system as a whole by preventing and mitigate systemic risk.
The proper application of the overall hedge policies is a challenge even for traditional financing.
And for the State of Kuwait, these challenges are faced when asking to make the procedures for the debt service of personal loans sector more transparent in order to help customers make be and informed decisions.
5. Supervision Across the Sectors and Borders
The fifth challenge is to ensure effective supervision of cross-sector and cross-border. And a case worthy of consideration, is the supervision of the banking conglomerates. It is necessary to apply regulatory and supervisory approach across the sectors of the Islamic banks to ensure the effectiveness of the supervisory process. In the countries where these activities are subjected to the supervision of a separate supervisory authorities, an urgent need has to be done for cooperation between the supervisory authorities, as for entities that are not subjected to control, the body that monitors the Foundation for the financial Islamic center, should have the authority and the ability to handheld risk evaluation controlled to those non-controlled companies or vice versa.
6. Economic Safety Nets
There is no financial system that is fully fortified in the face of danger. The importance of safety nets appears in times of financial turbulence, where these networks help to stop the spread of infection of these disorders to other institutions. As for the facilities of the last loaner, the central challenge for regulatory authorities is to establish clear procedures for the central bank that can be whereby role the last loaner.
First, we should enhance our supervisory by increasing the focus on high-quality research in relation to the financial activity and Islamic banking, in order to improve the design of controls and supervisory instructors’ process. Secondly, we must strive to achieve convergence in regulatory regimes. Finally, we should strengthen cooperation and learn from the regulatory experience of other countries.
* The article is summarized and translated from Al Qabas.