Shariah governance

Shariah risk management function

The function that identifies, measures, monitors and reports Shariah non-compliance risk across the institution.

The Shariah risk management function systematically identifies, measures, monitors and reports Shariah non-compliance risks in an institution's operations and activities. Bank Negara Malaysia's Shariah governance policy document requires it to integrate those risks into enterprise-wide risk management, identify exposures in business lines, assess their potential impact and set mitigation measures, and requires the officers performing it to have knowledge of the relevant Shariah requirements. It sits alongside Shariah review and Shariah audit, which check compliance after the fact.

Sources

Bank Negara Malaysia, Policy Document on Shariah Governance, 2019: Shariah risk management function

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.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 non-compliance eventAn actual failure to meet Shariah requirements, which must be confirmed, rectified and, where required, reported to the regulator.Operational riskThe risk of loss from failed processes, systems, people or external events; for Islamic institutions it includes Shariah non-compliance risk.