Critical Reflection on the Three Lines of Defence and the Role of Shariah Governance in Islamic Financial Institutions

Hidayah, Nunung Nurul (2016). Critical Reflection on the Three Lines of Defence and the Role of Shariah Governance in Islamic Financial Institutions. Islamic Finance Review, 2016 (April), pp. 33-42.

Abstract

Islamic financial institutions’ (IFIs) core attributes are not limited to merely ensuring that actions of the management are kept in line with the interests of shareholders and other stakeholders, but also to fulfil religious values and Shari’a requirements based on the Quran and sunna. Shari’a Supervisory Boards (SSBs) play critical role to ensure that all business activities are in line with the Shari’a principles. This is in addition to the shareholders who play their statutory role as active participants in the process of decision-making and control. The other stakeholders including the community should also take part in providing feedback to protect business and social interests and to stimulate social wellbeing. All of these processes are integral parts of evolving Islamic corporate governance regime that aims at harmonising private and social goals of business organisations while upholding the principle of distributive justice (Choudury and Hoque, 2004). This article explains the relevance of Three Lines of Defence approach in the context of IFIs. Looking at the broader perspective and objective of corporate governance in IFIs, the conventional governance standards can therefore be paired with Shari’a requirements to create a suitable corporate governance structure. Shari’a compliance assurance adds another dimension to corporate governance in IFIs. Therefore, to add Shari’a compliance assurance as an essential requirement of corporate governance in IFIs, the role and function of SSB must be assigned adequate importance.

Divisions: Aston Business School
Aston Business School > Accounting
Full Text Link: https://issuu.c ... 016-april_issue
Related URLs: https://issuu.c ... 016-april_issue (Publisher URL)
Published Date: 2016-04-01
Authors: Hidayah, Nunung Nurul ( 0000-0003-3178-4584)

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