BSP Approves Introductory Regulations on Islamic Banks and Islamic Banking Units

The Monetary Board approved the preliminary policy initiatives of the Bangko Sentral ng Pilipinas (BSP) to jumpstart the ensuing implementation of Republic Act (R.A.) No. 11439 or An Act Providing for the Regulation and Organization of Islamic Banks and the relevant provisions on Islamic banking under R.A. No. 11054, otherwise known as the Organic Law for the Bangsamoro Autonomous Region in Muslim Mindanao. R.A. No. 11439 which was signed into law on 22 August 2019 and became effective on 15 September 2019 provides the BSP with the legal authority to issue a broader set of rules and regulations on Islamic banking.

The BSP aims to create an enabling environment that will allow Islamic banks to operate alongside the conventional banks under the same regulatory and supervisory approach, taking into consideration the unique features of the Islamic banking operations. The goal is to provide a coherent, consistent, and comprehensive set of regulations and standards to encourage wider investor and consumer participation on Islamic banking and finance without any regulatory arbitrage.

The regulations which resounded the BSP's promotion of strong corporate governance and consumer protection cover the licensing framework on the establishment of Islamic Banks (IBs) and Islamic Banking Units (IBUs) and the BSP's expectations on the Shari'ah Governance Framework (SGF) for IBs and IBUs. The BSP's existing licensing framework on the establishment of conventional banks and branches is adopted, as appropriate, with supplementary requirements relevant to Islamic banking operations and Shari'ah compliance.

The regulations will implement the legal provisions on the following:

a. Establishment of Other Islamic Banks. R.A. No. 11439 allows other Islamic banking players, either full-fledged Islamic banks or Islamic banking windows, to operate in the Philippines. Subject to the approval of the Monetary Board, conventional banks, whether domestic or foreign banks, will be allowed to open Islamic banking unit or to establish a subsidiary Islamic bank. Foreign banks can operate in the Philippines under any of the modes of entry provided under R.A. No. 7721, as amended, or An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes; and

b. Shari'ah Compliance. R.A. No. 11439 provides that it shall be the responsibility of an Islamic bank to ensure its compliance with Shari'ah principles. The Islamic bank shall constitute its Shari'ah Advisory Council (SAC) composed of persons who are qualified and have knowledge or experience in Shari'ah and in banking, finance, law or such other related disciplines.

Source: Bangko Sentral ng Pilipinas