Islamabad, February 3, 2024 – The Securities and Exchange Commission of Pakistan (SECP) has taken a significant step towards the comprehensive adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards by inviting public comments on its new strategy.
The proposed strategy, outlined in a consultation paper, focuses on Shariah, accounting, auditing, and governance standards for financial institutions.
The objective of the new strategy is to strengthen the implementation of AAOIFI standards through a more inclusive and interactive approach. To ensure effective compliance, the proposed strategy suggests a phased implementation of all standards, taking into account the industry’s maturity level and practical challenges associated with adopting all standards simultaneously.
Currently, only seven Shariah standards have been adopted, and the adoption of ten more is in progress. However, the existing approach, which selects standards based on necessity, may overlook significant features in accounting, auditing, governance, and other Shariah-related standards. The proposed strategy emphasizes a more comprehensive, integrated, and interactive approach, incorporating feedback and preparing for the growth of global and domestic Islamic finance.
Under the new strategy, all AAOIFI standards will be adopted as non-binding guidelines. Financial institutions will be encouraged to voluntarily adopt these standards while conducting Islamic financial transactions. The strategy begins with a general sensitization period, after which compliance will shift to a “comply or explain” approach. Non-compliance will be subject to penal action, with the specific period of penalization (not less than three years) to be announced later. The final phase mandates full compliance with all notified standards, aiming to equip the industry gradually for smooth and effective implementation.
The SECP anticipates that this new strategy will elevate the quality of Islamic financial services in regulated sectors, contributing to enhanced transparency and compliance in Islamic financial transactions. This, in turn, is expected to bolster stakeholder confidence.
To facilitate a more meaningful public consultation process, the SECP also plans to conduct roundtable sessions. These sessions aim to gather valuable insights and feedback from stakeholders, including financial institutions, experts, and the public, ensuring that diverse perspectives are considered in the finalization of the strategy.
The SECP’s initiative underscores its commitment to promoting transparency, accountability, and compliance within the Islamic financial sector. By engaging with stakeholders through the public consultation process, the SECP seeks to create a robust framework that aligns with global best practices while addressing the unique challenges of the Islamic finance industry in Pakistan.
