The Islamic Financial Services Board (IFSB) has proposed a new standard covering the regulation of sharia-compliant capital market products, posing a challenge for regulators, issuers and intermediaries working on Islamic bonds, or sukuk, Reuters reported. The exposure draft from the IFSB, one of the main standard-setting bodies in Islamic finance, represents the most detailed effort to rein in claims of sharia non-compliance and clarify resolution of disputes in sukuk deals. Such issues have gained prominence over the past year after a company in the United Arab Emirates stopped payments on a $700 million sukuk, arguing the transaction no longer complied with Islamic principles. That triggered a legal dispute in both the English and UAE courts. The Malaysia-based IFSB has previously issued guidelines for disclosure of Islamic capital market products, but the new standard extends responsibilities to national regulators. Sukuk should be subject to specific disclosure requirements to clarify all aspects of sharia compliance, including remedial processes, governing laws that guides disputes and courts where cases will be heard. This is important for investors wishing to gauge the legal treatment of such contracts, specifically on how courts will handle sharia-related arguments, the IFSB said.
