• Dr. Omran: The decision establishes a central mechanism to approve the issuance of sukuk after it has been approved by Shari’ah Sub-Committees
• Dr. Omran: Membership of the Central Shari’ah Supervisory Committee prevents conflict of interest and requires registration at FRA’s registry for “members of Shari’ah Supervisory Committees”
In a regulatory action to complete Sukuk issuance system and to make it available as a financing tool, FRA’s BOD approved – at its last meeting – the rules set for the formation of Shari’ah Supervisory Committees to issue Sukuk that complies with Shariah after obtaining the approval of Al-Azhar Al-Sharif.
Dr. Mohammed Omran – FRA’s Chairman said that the Board’s decision no. (42) of 2019 stipulated the formation of a central committee for Shari’ah Supervisory committee. The said committee shall include nine members of the most prominent Islamic Shari’ah scholars and some specialists who have wide experience in legal and financial fields and registered at FRA’s registry. Also, the decision stated that committee’s member shall not be a major shareholder or a member of a board of directors of a company subjected to the provisions of the Capital Market Law during the two years preceding the date of membership. The committee shall have a technical secretariat from FRA’s staff. The committee’s secretariat shall record the minutes of its meetings, follow up the implementation of its decisions and keep its records.
Dr. Omran noted that the central committee will approve the issuance of sukuk that complies with Shari’ah and issued by the issuers. Also, it will supervise the legitimacy of the issuances and the use of its proceeds. The committee shall review the quarterly reports submitted to the Authority by sub-committees of non-banking financial institutions Which allows the issuance of sukuk , that is during issuance period to redemption in accordance with disclosure rules issued by the Authority.
FRA’s Chairman explained that Article 4 of Board’s decision defines the regulatory framework for the functions of Shari’ah Supervisory Committee. The decision stated that the committee shall participate with the Authority’s specialists in drafting contracts and agreements for the issuance of sukuk that complies with Shari’ah to ensure that they are free from any legal prohibitions. That is besides setting the general frameworks for the issuance of sukuk. Also, the committee shall express its opinion and set the legal classification for requests to issue sukuk in accordance with the provisions of Shariah , so as shed light on the risks that sukuk holders may face and to protect their rights , accordingly submitting requests to FRA’s BOD. Besides,the committee shall present practical proposals to the issuer to correct them or change the classification if possible.
Dr. Omran added that the central committee shall submit an annual report to FRA’s BOD on the legal validity of sukuk issuances in the market based on a study that meets this purpose and in accordance with the periodic reports submitted to it by the sub-committees which approves these issuances. Moreover, the central committee shall consider and decide on the disputes that arise between the non-banking financial institutions and the Shari’ah Supervisory Committees on any of the fatwas or the jurisprudential aspects.
Dr. Omran pointed out that FRA’s BOD decision no. (42) of 2019 referred to the formation of sub-committees for Shari’ah supervision, stating that the number of members shall not be less than three and not more than five and the majority of specialists in the jurisprudence. Members of sub-committees shall be aware of aspects of economics, accounting and law. In addition, members of the sub-committee shall be assigned by the General Shareholders Assembly or the competent authority in other bodies for a period of three renewable years.
The General Assembly or the competent authority shall be responsible for following up the reports issued by the sub-Committee, whether internal or external, prepared for the purpose of periodic disclosure. Afterwards, the sub-committee shall take any administrative penalties in the event of legal or moral violations resulting from non-compliance with fatwas , Shari’ah resolutions, laws and regulations and related systems.
Dr. Omran stressed that sub-committee shall review the prospectus and contracts concluded by sukuk issuer or the investment financial instruments which are referred to as Shariah-compliant. Moreover, the sub-committee shall review and study all the legitimate aspects in light of fatwas of the Central Shari’ah Supervisory Committee and its decisions. The Committee shall either approve what is presented to it as it is after verifying compliance with the Shariah principles or after it shall make some necessary amendments or reject it if it is not possible to approve or amend. Finally, the decision shall be issued by a majority of its member.
FRA’s Chairman stressed that sukuk which will be listed and traded must be approved by the sub-committee and the Central Shari’a Supervisory Committee. Fatwas and decisions concerned with the legal aspects issued by the Committee are binding on the sub-committee, the beneficiary or any of the parties associated with sukuk issuance. Sukuk issuer or the special purpose vehicles (SPVs) shall comply with the form issued by the Committee in order to be allowed to issue sukuk. On the other hand, it is prohibited to deal with any form in which there is no clear and explicit fatwa issued by the Committee.