Shariah governance

Shariah non-compliance event

An actual failure to meet Shariah requirements, which must be confirmed, rectified and, where required, reported to the regulator.

A Shariah non-compliance event is an occurrence in which an institution's operations, business or activities fail to meet Shariah requirements, as distinct from the risk that such a failure might happen. Bank Negara Malaysia's Shariah governance policy document gives the Shariah committee the role of deliberating on and affirming non-compliance findings and endorsing rectification measures, and requires rectification plans submitted to the Bank to carry the committee's deliberations and rationale. In practice, each event needs a record of what happened, how it was found, its financial effect and how it was rectified.

Sources

Bank Negara Malaysia, Policy Document on Shariah Governance, 2019: Shariah committee role on non-compliance findings and rectification

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.Purification of incomeGiving away, usually to charity, income from a non-compliant source or a Shariah breach, so the institution does not benefit.Shariah reviewA regular compliance function that assesses whether an institution's operations follow Shariah requirements.Shariah auditAn independent assessment of internal controls, risk management and overall Shariah compliance, usually by internal audit.Shariah resolution (board decision)A recorded decision of a Shariah board or committee on a product, transaction or issue, with its reasoning and any dissent.