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Bahrain eyes external sharia audits for islamic banks

´╗┐Bahrain's Waqf Fund, a non-profit body set up by the central bank, has proposed mandatory external sharia audits for Islamic financial institutions to help strengthen compliance and improve the image of the industry. Regulators around the world are increasing their scrutiny of Islamic finance, including the boards of sharia scholars who rule on whether activities follow religious principles. Since sharia boards tend to be paid by the institutions whose activities they oversee, the scholars can be open to accusations of conflicts of interest - prompting calls for separate and independent oversight. The Waqf Fund, established in 2006, is backed by 21 institutions such as banks and mostly focuses on educational initiatives. Bahraini regulators do not have to accept its proposals but since it is chaired by the central bank's executive director of banking supervision, Khalid Hamad, its recommendation appears likely to be adopted. While the proposal is for Bahrain, it may have an impact on Islamic finance globally because of Bahrain's central role in the industry.

The proposal ties in with growing pressure for reforms to the sharia oversight system in other countries. For example, Kuwait's central bank governor Mohammad al-Hashel suggested in a December speech that an independent legal entity should oversee the way in which Islamic financial institutions certify they are following sharia principles.

FRAMEWORK The Waqf Fund will develop a framework for external sharia audits with a team of audit firms, scholars and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)."An independent sharia audit should be made mandatory by regulators in order to achieve the desired benefits," the fund said in a statement on Sunday.

Because it suggests that sharia compliance audits be part of the existing external auditor framework, the Bahraini fund's proposal is more specific than Hashel's proposal in Kuwait. The Waqf Fund also called for a revamp of AAOIFI standards to provide more detail on sharia review and audit functions, while making AAOIFI's sharia auditor certification mandatory for people involved in the review process. Bahrain is one of the few jurisdictions where AAOIFI standards are mandatory. Many countries, including Malaysia and Pakistan, have over the past year taken steps to overhaul their Islamic finance rules; the reforms have included taking a more active role in monitoring sharia scholars. In Malaysia, scholars are now legally accountable for the financial products they approve and liable to fines and prison time for wrongdoing. Bahrain's central bank will release a new regulatory framework for Islamic insurance (takaful) this quarter, in an overhaul of standards which the regulator hopes will attract new business in a sector it helped to pioneer.

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British business takes fright at prospect of a miliband government

´╗┐* UK business alarmed by Miliband rhetoric* Business tends to support Conservatives, but backed Blair* Would like EU vote brought forward if Cameron wins* Business could campaign to keep Britain in EUBy Kate Holton and William JamesLONDON, Feb 19 British opposition leader Ed Miliband has so alarmed business executives with his talk of 'asset strippers' and 'tax dodgers' that many want a Conservative win at the election, even if it carries the risk of an exit from Europe. Representatives of some of Britain's biggest firms accuse the Labour party leader of demonising big business as a way to align himself with ordinary voters before the May 7 election. Pledges from the 45-year-old to set energy prices, reform banks and lift the minimum wage have been followed by several uncomfortable meetings with the heads of companies. As a result, executives are backing David Cameron's Conservatives, even though that entails a referendum on Europe before the end of 2017, potentially deterring companies from investing in Britain and, if there is a vote to leave, disrupting trade with the 500 million-strong EU. In return, they would like the in/out vote brought forward."On the one hand we have Labour ... that seems to believe that bashing business will be good business at the ballot box, but you don't have a referendum," Martin Sorrell, CEO of the world's largest advertising agency WPP and an employer of 179,000 people, told Reuters."On the other you have the Conservatives who tend to be more attuned to business but have a commitment to a referendum."British business has long aligned itself with the centre-right Conservatives, but that changed under Tony Blair, Labour's most successful leader, who embarked on a "prawn cocktail offensive" to build relations with Britain's boardrooms before winning three elections starting in 1997. One Blair aide declared that Labour was "intensely relaxed about people getting filthy rich".

But 18 years on and with the Conservatives still blaming Labour for the economic crash, Miliband has sought a different tone. Elected to lead Labour largely with the backing of unions, he set out his stall towards business in 2011 when he described some firms as predators and asset strippers. His pledge in 2013 to cap household energy prices tapped into the frustration of voters tired of constant increases. And he has since painted himself as the man to take on the vested interests of business and the London-centric elite."A lot of the meetings between my clients and Ed Miliband have been very unsatisfactory," said Charles Lewington, managing director of lobbyists Hanover, who counts 25 global firms among his 75 clients."For five minutes he says tell me what your concerns are, and then for 55 minutes he says this is how I think business should operate in a world of austerity where ordinary people are not earning enough."Nearly all Hanover clients back the Conservatives, he said. A recent poll of executives said the same.

"PRAWN COCKTAIL OFFENSIVE" Meetings between senior executives of another FTSE-100 company and Ed Balls, Miliband's finance spokesman, were much more constructive, one source said, and other execs noted that politicians often change their tone once in power. A source familiar with Labour said the party was also being punished for its plans to tax the rich more, which include a "mansion tax" on expensive properties as well as a higher rate of income tax for the top earners. But as the election approaches, with no clear winner in prospect, Miliband has been compared with some of the most anti-business Labour leaders of the 1980s, when an ideological battle raged over the role of the free market and the state. He has billed Cameron's Conservatives as the 'party of the rich' with one set of rules to its friends who avoid tax, and another entirely fir those who cheat the benefit system. A recent opinion poll showed the approach was gaining traction, with nearly twice as many Britons thinking Miliband is on the side of ordinary people as opposed to those who think he is a danger to the economy. But it has set alarms ringing not only in the shining towers of London but in offices and factories up and down the country.

"It's an easy trick for politicians to point at business and call them fat cats," said Richard Steele, the non-executive chairman of pottery company Portmeirion, which employs 600 people and is based in Stoke on Trent, central England."But interventionism is dangerous, Ed Miliband must understand that there are laws of unintended consequences."TOXIC DEBATE Voting Conservative however is no easy option for business. Facing a growing threat from the anti-EU UKIP party and a number of his own party members, Cameron has vowed to clamp down on immigration and renegotiate Britain's ties with Brussels. Several top British chief executives have told Reuters they fear the "nightmare" uncertainty a referendum would bring. Some, speaking on condition of anonymity, said the issue was now so toxic it could only be settled with a vote, and they would like to see a reduction in the bureaucracy coming from Brussels. But the sooner it can happen the better."Despite being pro-European, the damage Labour could do is clearly much bigger than the positive of their position on Europe," the chief executive of one FTSE 100 company said, adding that it would be better to have Cameron win the election and then win a referendum to keep Britain in the EU. For Portmeirion's Steele though, the very prospect is terrifying. While he accepts that the Conservatives are more a friend of business, he worries that an exit from Europe would hit London's position as a financial centre."I feel as though they are (raising the stakes) and I'll be really frightened if they get it wrong," he said. Several CEOs said they would be willing to drop their usual reluctance to speak out and campaign for Britain to stay within the EU, following a similar approach taken in Scotland when business leaders campaigned to keep the country together."If we're going to have (a referendum), let's have it quickly," Jerry Buhlmann, CEO of the 23,000-strong Dentsu Aegis Network marketing firm, told Reuters. "It is legitimate for business to have a point of view. We're not the bad guys."