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AAOIFI CPFAS study materials
AAOIFI CPFAS study resources

AAOIFI CPFAS: Governance Standards for Islamic Financial Institutions: Structure, Shari'ah Supervision and Disclosure

AAOIFI CPFAS · Work through your exam, one topic at a time.

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Governance Standards for Islamic Financial Institutions: Structure, Shari'ah Supervision and Disclosure

What the governance domain tests

AAOIFI's Governance Standards (GS) define how an Islamic financial institution (IFI) must be governed - who decides, who oversees, and what must be disclosed. The core standards are GS 1 (Shari'ah supervisory board - appointment, composition, terms of reference), GS 2 (Shari'ah review), GS 3 (internal Shari'ah review), GS 4 (audit and governance committee), GS 5 (independence of the Shari'ah supervisory board), GS 6 (conversion of a conventional bank to Islamic), GS 7 (corporate social responsibility), GS 8 (governance for Islamic windows), and GS 10 (Shari'ah compliance and the role of the Shari'ah auditor).

Concepts you must hold

  • Shari'ah supervisory board (SSB): appointed by shareholders, independent of management, issues fatwas and rulings; its decisions bind the IFI.
  • Independence: SSB members should not hold executive roles; GS 5 sets out independence criteria and conflicts.
  • Shari'ah review vs. internal Shari'ah review vs. audit: GS 2 is the SSB's own review; GS 3 is the internal control function; GS 4 is the audit committee's oversight.
  • Disclosure: the annual report must disclose SSB composition, remuneration, fatwas issued, and any non-compliance findings.
  • Islamic windows (GS 8): must be ring-fenced, with separate funds and separate Shari'ah governance.

Traps

  1. Assuming the SSB manages operations - it supervises; management executes.
  2. Confusing GS 2 (Shari'ah review by the SSB) with GS 3 (internal Shari'ah review by staff).
  3. Treating SSB remuneration as confidential - it is a disclosure item.
  4. Missing that GS 8 requires separate governance for windows.

Rule of thumb

Ask: who is doing the reviewing? SSB → GS 2. Internal staff → GS 3. Audit committee → GS 4. Independence question → GS 5. Window → GS 8.

Worked example

A question says an IFI's internal audit team checks whether transactions comply with fatwas. That is internal Shari'ah review (GS 3), reported to the audit and governance committee (GS 4) - not the SSB's own review under GS 2. The trap is to answer "GS 2" because the word Shari'ah appears.