Operational risk
The risk of loss from failed processes, systems, people or external events; for Islamic institutions it includes Shariah non-compliance risk.
Operational risk is the risk arising from inadequate or failed internal processes or systems, the behaviour of personnel, or external events. IFSB-28 specifies that for takaful undertakings it includes legal risk, Shariah non-compliance risk, fiduciary risk and part of custody risk, but excludes strategic and reputational risk. The same approach of treating Shariah non-compliance as an operational risk runs through the IFSB's banking standards.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
Shariah non-compliance riskThe operational risk that an institution fails to comply with Shariah rules and principles in its products and services.Fiduciary riskThe risk that an institution fails to meet the standards that apply to its duties as trustee or manager of others' funds.Capital adequacy (Islamic banks)Holding enough capital against risks; for Islamic banks, the IFSB adapts the Basel rules to each Shariah contract.