MAS Updates Guidelines for Islamic Banking

The Monetary Authority of Singapore (MAS) updated guidelines on the application of banking regulations to Islamic banking, with effect from July 01, 2022.

The updated guidelines are applicable to all financial institutions offering Islamic banking in Singapore. The guidelines set out general approach of MAS to the regulation of Islamic banking, providing guidance on the admission framework for financial institutions intending to offer Islamic financial services and the regulatory treatment for Islamic banking products, including the capital treatment of such products. The guidelines only cover the application of the Banking Act (Cap 19), Banking Regulations, and written directions issued pursuant to the Banking Act and do not cover the application of other legislation, such as the Securities and Futures Act and the Financial Advisers Act. The guidelines also seek to clarify the MAS policy on Islamic banking by explaining the regulatory treatment of specific Islamic structures. Going forward, MAS will continue to refine the regulatory framework, as new Islamic structures evolve, and review these guidelines on a periodically to ensure their relevance. MAS explains that

  • its regulatory approach has been focused on addressing the risks to the soundness of a financial institution; thus, it has adopted the same regulatory approach toward Islamic and conventional banks.
  • it has applied the same set of admission criteria when considering an application by a conventional bank as well as an Islamic bank to operate in Singapore. While the unique features of Islamic banking may alter the source and extent of risks, MAS does not expect the risk profile of an Islamic bank to be fundamentally different from its conventional banking counterparts.
  • as part of the single regulatory framework, a bank conducting Islamic banking activities will be required to comply with the same set of rules and regulations as any other bank in Singapore—namely the Banking Act, Banking Regulations, Notices, and Directives. Since Islamic banks face Shariah compliance risk, MAS does not prescribe what constitutes Shariah compliance nor endorse specific Shariah rulings and expects that Islamic banks should manage Shariah compliance risk as part of their overall risk management process.