Sharia Governance and Audit
This domain tests the machinery that makes compliance verifiable: the Sharia Supervisory Board, ex-ante and ex-post review, sharia audit and breach remediation.
Structure
- SSB - issues fatwas and resolutions, approves products and contracts, and reports annually. Independence requires no executive role, disclosed fees, defined tenure and confidentiality (AAOIFI GSIFI 1 and 5; IFSB-10).
- Sharia review - ex ante (product approval, documentation) and ex post (sampling executed transactions).
- Internal sharia audit - independent of business lines, risk-based plan, reporting to the audit committee and SSB (AAOIFI GSIFI 3).
- External sharia audit - required in some jurisdictions only.
- Compliance framework - policy manual, training, breach register, remediation.
Worked example
A review finds a murabaha contract signed before the bank acquired the goods. Reasoning: ownership before sale is a validity condition, so the sequence breaks the structure. The response: survey all similar contracts, let the SSB rule on the profit (typically donated to charity), fix the sequencing controls, and disclose the breach in the annual Sharia report.
Traps
Treating the SSB as a rubber stamp; confusing ex-post sharia review with internal audit; assuming an annual sharia report certifies every transaction; letting the SSB approve its own remuneration.