The IFSB Issues Joint IFSB-AMF working paper on Money Laundering and Financing of Terrorism (ML/FT) risks in Islamic banking
The Islamic Financial Services Board (IFSB) is pleased to announce the issuance of a joint paper titled ‘Joint Islamic Financial Services Board (IFSB) – Arab Monetary Fund (AMF) Working Paper on Money Laundering and Financing of Terrorism (ML/FT) Risks in Islamic Banking’ (WP-12).
The IFSB and AMF collaboration aimed to examine ML/FT methods, trends and typologies as specifically related to Islamic banking, and attempted to address whether there is any evidence that ML/FT risks in Islamic banking are indeed different from those that arise in conventional banking. From that perspective, this Working Paper (WP-12) explored the diverse risks of ML/FT activities in the banking system to identify if they vary between conventional and Islamic banking.
On the issuance of this paper, Secretary General of the IFSB, Dr. Bello Lawal Danbatta stated: “This paper is a timely response of the IFSB to the comments that the Islamic financial services industry (IFSI) may be highly prone to the issues of ML/TF risks which might emanate from the intrinsic characteristics of instruments and arrangements used in Islamic banking, or from the nature of the contractual relationship between Islamic banks and their customers.” He further noted, “The paper would enhance the understanding and awareness among the stakeholders of the IFSI regarding the ML/TF risks in Islamic banking and would constitute the basis for further research works.”
The paper discusses survey responses received from banking regulatory and supervisory authorities (RSAs) on ML/FT. Overall, the paper does not find any significant difference in the ML/FT risks between conventional and Islamic banking. Moreover, the concerns often raised regarding the potential for Islamic social finance platforms such as zakah, waqf, sadaqah, etc., to be used to mobilise, store and disburse funds for ML/FT is unfounded based on the research findings. In addition, most respondent RSAs view that there is no merit in introducing specific regulations or preventive measures to address the ML/FT risks in Islamic banking. Since risk levels are largely similar in both conventional and Islamic banking, Islamic banks should adhere to their own country regulations and the Financial Action Task Force standards to combat ML/FT.
The working paper is available for download from the IFSB website: www.ifsb.org
About the Islamic Financial Services Board (IFSB)
The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. Towards this end, the IFSB works closely with relevant international, regional and national organisations, research/educational institutions and market players.
The members of the IFSB comprise regulatory and supervisory authorities, international inter-governmental organisations and market players, professional firms and industry associations.
For more information about the IFSB, please visit www.ifsb.org