CRITERIA OF POTENTIAL SHARIAH NON-COMPLIANCE EVENT: ANALYSIS IN A FULL-FLEDGED ISLAMIC BANK IN MALAYSIA

Aizul Aiman Musa; Supiah Salleh; Zurina Shafii

doi:10.53840/ijiefer192

Authors

Aizul Aiman Musa Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia
Supiah Salleh Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia
Zurina Shafii Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia

DOI:

https://doi.org/10.53840/ijiefer192

Keywords:

Potential Shariah Non-Compliance Event, Shariah Non-Compliance Reporting, Shariah Control Function

Abstract

Referring to the latest ORR policy document issued in 2023, Bank Negara Malaysia (BNM) has removed the requirement for a Potential Shariah Non-Compliance (SNC) to be confirmed by a “qualified Shariah officer” and replaced with the “officer within Shariah control function” which could include officers with and without the Shariah study background. This amendment raised questions on how the officer without the Shariah study background assessed and confirmed an event as a Potential SNC before escalating it to the Shariah Committee for confirmation. In general, Islamic banking is distinguished from conventional banking by its adherence to the principles of Shariah. As compared to its counterpart, Islamic banking is exposed to an additional risk peculiar to its operation: the SNC risk. Thus, proper management of SNC risk is vital for Islamic banking since the impact of the risk could not only possibly affect the financial but also the image it carries. One of the governance aspects in managing SNC risk is the capability of its officer to identify, assess, and report SNC incidents. In this regard, BNM through its Operational Risk Reporting (ORR) policy document, requires Potential SNC events and Actual SNC events to be reported to the BNM. This paper discusses the criteria for Potential SNC events as a guide to be used by officers within the Shariah control function. This research adopted a qualitative approach using interviews and comparative content analysis of the financial statements of one of the full-fledged Islamic banks in Malaysia as the methodology for data analysis.

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