Chapter 6 Islamic Investment Business Overview

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Questions and Answers

What is the main purpose of establishing an Internal Syariah Audit Framework (ISAF) within financial institutions?

To facilitate effective implementation of internal Syariah audit (correct)

To ensure compliance with international banking regulations

To support financial institutions in restructuring debts

To enhance profitability of the institutions

What basis are financial institutions encouraged to adopt recommendations regarding the Internal Syariah Audit Framework (ISAF)?

Voluntary guidelines only

Comply or explain basis (correct)

Mandatory adherence without exception

Strictly enforced supervision basis

Which of the following is NOT an objective of the Internal Syariah Audit Framework (ISAF)?

Setting expectations from the Authority on financial institutions

Reducing operational costs of financial institutions (correct)

Providing guidance on Internal Syariah audit governance

Specifying the scope of internal Syariah audits

Within how many months must financial institutions establish an Internal Syariah Audit Framework (ISAF) following the issuance of the notice?

Six months Signup and view all the answers

Which of the following components is NOT mentioned as part of the ISAF guidance for financial institutions?

Third-party auditing requirements Signup and view all the answers

What is the primary responsibility of the internal auditor concerning Syariah compliance?

To monitor compliance with the SMO and report non-compliance to the SAB and BOD Signup and view all the answers

Which standards must the ICM Participant comply with when preparing and maintaining financial accounts?

Both IFRS and AAOIFI Standards, where applicable Signup and view all the answers

What approvals are necessary for charges and fees imposed by the ICM Participant?

Approval from both the SAB and the BOD Signup and view all the answers

Which of the following securities is allowed for the ICM Participant to deal with?

Only local Islamic securities approved by the SAB and SFSB Signup and view all the answers

What is required for managing the banking accounts of the ICM Participant?

The participant is encouraged to maintain accounts at an Islamic bank Signup and view all the answers

What is the main aim of the internal policies regarding advertisements for the ICM Participant?

To guarantee that advertisements align with regulatory approvals from SAB and BOD Signup and view all the answers

What should the ICM Participant's written declaration include?

Confirmation that business activities align with Hukum Syara’ and applicable guidelines Signup and view all the answers

What additional requirement exists for distributing foreign Islamic securities in Brunei?

Approval from the SFSB is also necessary Signup and view all the answers

What immediate action is expected from the SAB and BOD regarding reported non-compliance?

Taking immediate remedial action to rectify the non-compliance Signup and view all the answers

In terms of daily operations, what must the ICM Participant ensure to comply with Hukum Syara’?

Establishing adequate policies, systems, and internal controls Signup and view all the answers

What does the disclaimer from the Brunei Darussalam Central Bank indicate about the responsibility for actions taken based on the study manual?

BDCB disclaims any liability for consequences resulting from reliance on the manual. Signup and view all the answers

Which organization is responsible for setting standards applicable to Islamic financial institutions?

Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Signup and view all the answers

What could be the role of a Special Purpose Vehicle (SPV) in Islamic investment business?

To facilitate specific investment transactions while isolating risk. Signup and view all the answers

Which framework must be implemented to ensure compliance with Islamic law in financial products?

Syariah Governance Framework (SGF) Signup and view all the answers

What does the term 'Over the Counter (OTC)' imply in the context of Islamic investment business?

Direct trading of financial instruments between two parties without a central exchange. Signup and view all the answers

Which of the following best describes a Collective Investment Scheme (CIS) in the context of Islamic finance?

A pooled investment vehicle that adheres to Islamic principles. Signup and view all the answers

What is the main purpose of the internal Syariah audit framework (ISAF) in Islamic investment businesses?

To ensure adherence to Islamic laws and regulations within the financial institution. Signup and view all the answers

Which license is essential for conducting Capital Markets Services in the context of Islamic finance?

Capital Markets Services Licence (CMSL) Signup and view all the answers

What must an ICM Participant ensure regarding the handling of clients' funds?

Proper segregation of funds must be maintained. Signup and view all the answers

What is required when outsourcing critical operational functions?

Written and binding agreements must be in place. Signup and view all the answers

What does 'purification' refer to in the context of non-permissible revenue?

Removing tainted income and channeling it to charity. Signup and view all the answers

Why is it important for the system used by the ICM Participant to support clear separation of activities?

To ensure compliance with regulations and operational integrity. Signup and view all the answers

What should the internal policies on Zakah contributions be based on?

Approval by the SAB and BOD. Signup and view all the answers

What must not be impaired by outsourcing important operational functions?

Both A and B. Signup and view all the answers

What is the role of the SAB in the context of purification policies?

To approve purification policies. Signup and view all the answers

Which statement regarding the accrual of interest on bank accounts is true?

Bank accounts should not accrue interest. Signup and view all the answers

What must be ensured with respect to trading accounts in an Islamic window?

They must be clearly tagged for specific Islamic purposes. Signup and view all the answers

What should risk management arrangements for an ICM Participant address?

Syariah operational and compliance risk. Signup and view all the answers

What is the prerequisite for a financial contribution to qualify as Zakah?

The contributor must have maintained wealth for one lunar year. Signup and view all the answers

Which entity must approve the offering of Islamic financial products?

The Authority overseeing financial institutions Signup and view all the answers

When must an application for an Islamic financial product be submitted?

Before offering financial services related to that product. Signup and view all the answers

Which of the following circumstances does NOT require compliance with Appendix 1 requirements?

A variation to an existing product leading to a material change. Signup and view all the answers

What is the maximum period within which the Authority must respond to a completed application?

40 working days Signup and view all the answers

Which of the following scenarios would require adherence to Appendix 2 requirements?

Changing the Syariah concept of an existing product structured according to Syariah Standards. Signup and view all the answers

What is a duty of the SAB as mandated by the Guidelines on Syariah Governance Framework?

Advising on Zakah and Syariah non-compliant income matters. Signup and view all the answers

Which of the following is NOT true regarding the Guidelines on the Islamic Product Approval Process?

They are optional for Islamic financial institutions. Signup and view all the answers

Which of the following factors does NOT influence the requirements for an Islamic product application?

The financial institution’s history of compliance. Signup and view all the answers

Study Notes

Disclaimer

BDCB is not responsible for any actions taken based on information in this manual
They are not liable for any consequences of actions taken based on this manual
BDCB does not provide legal or other expert advice

Applying to Conduct Islamic Investment Business

ICM Participant is a term used to refer to an entity that is approved by BDCB to carry out Islamic investment business activities
Any entity applying to carry out such activities must comply with the SMO, 2013, and the BDCBO, 2010
Compliance with the Syariah Governance Framework (SGF) as outlined in BDCB Notice No.IFAU/N/1/2018 is required for all applications

Conducting Islamic Investment Business

ICM Participants are required to ensure all business operations and activities comply with Hukum Syara’

Specific Requirements

ICM Participants must comply with IFRS and AAOIFI standards when preparing financial accounts and statements
Charges and fees imposed on transactions and services must be approved by the SAB and BOD
- This applies to dealings and arrangements of investments in Islamic securities

Approval of Islamic Financial Products

Prior to offering financial services or products, ICM Participants must obtain approval from the Syariah Financial Supervisory Board (SFSB)
The Notice on Application Process of Islamic Product sets out requirements for application of Islamic products

Implementing a Syariah Governance Framework

All firms must establish an Internal Syariah Audit Framework (ISAF) within 6 months of the issuance of the notice
All firms are encouraged to adopt ISAF recommendations on a “comply” or “explain” basis
The objective of ISAF is to set expectations on firms to establish institutional arrangements and recommendations to facilitate the effective implementation of internal Syariah audit as an integral component of the SGF
- This includes specifying the scope of internal Syariah audit, internal Syariah audit objectives, internal Syariah audit governance, internal Syariah audit charter, competency of internal Syariah auditors, internal Syariah audit process and reporting for internal Syariah audit

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Description

This quiz covers key regulations and requirements for conducting Islamic investment business as per BDCB standards. It includes compliance with relevant frameworks such as SMO, 2013, and the Syariah Governance Framework. Test your knowledge on the specific requirements for ICM Participants and their responsibilities.