LEGAL ISSUES IN SHARĪʿAH GOVERNANCE IN THE ISLAMIC FINANCE INDUSTRY IN MALAYSIA

In Malaysia, the Islamic Financial Services Act 2013 (IFSA), the Central Bank of Malaysia Act 2009 (CBMA) and the Shariah Governance Framework (SGF) prescribe the structures and processes required for the Islamic finance industry to ensure compliance with the Sharīʿah (Islamic law). The Shariah Advisory Council of Bank Negara Malaysia (SAC)—the apex authority on Sharīʿah matters relating to banking and takāful—passes rulings and advises Bank Negara Malaysia (BNM), Islamic financial institutions (IFIs), the courts and arbitrators on Sharīʿah issues. The Shariah Committee (SC) of each IFI, on the other hand, functions within the specific IFI to ensure compliance of its operations with the Sharīʿah. This research highlights current legal issues within the Islamic finance industry that should be addressed to optimise the role that each organ plays. The research highlights that the role of the SAC should be beyond just ‘ascertainment’ of Islamic law and suggests the amendment of s.57 of the CBMA. It also proposes to allow ‘other persons’ to seek the expert advice of the SAC. The enhanced role of monitoring and rectifying Sharīʿah non-compliance and the distinct burden and liability of the SC is highlighted in this research. Also, the role of the Board of Directors (BOD) vis-à-vis the SC and their shared responsibility in relation to Sharīʿah compliance is explored. Finally, recommendations are suggested to overcome the legal issues raised