The Islamic Financial Services Board (IFSB) has published new guidelines on liquidity and stress testing, seeking to reduce the balance sheet risk of Islamic financial institutions in line with a tightening of standards in conventional banking.
The guidelines are the first published by the Malaysia-based body, which sets global standards for Islamic finance, since December 2010. The guidelines are not mandatory it is up to national regulators to decide whether to adopt them but the IFSB said it expected regulators to begin using them in 2013.
Under one set of new guidelines, the IFSB calls for closer scrutiny of maturity mismatches, more attention to avoiding excessive concentration of funding sources, and better measurement of unencumbered assets, or assets on which there are no claims. A second set of IFSB guidelines covers stress testing of Islamic financial institutions, offering 29 principles that cover risks specific to Islamic banks.
The IFSB's new standards are part of a series of initiatives in the last several months to address the issue of risk in the industry.