Riyadh, Asharq Al-Awsat- There have been many requests from readers that I dedicate an article to the topic of the [upcoming establishment of the] Supreme Legitimate Authority for Islamic Banking, its objectives, its constitution, its powers, its benefits and its apparatus.
The presence of this authority has become particularly important owing to the rise of jurisprudential disputes on the services offered by Islamic banking between members of legitimate authorities of Islamic banking institutions. Moreover, some financial institutions have utilized these disputes to oust competitors from the market by stating that some services offered by these banks do not comply with Shariaa despite the fact that these services have been approved by a legitimate authority that constitutes of prominent scholars.
Eventually, this leads to ethical and legal dilemmas for these financial institutions. I would like to clarify that the issue that is being tackled in this article is the presence of a supreme legitimate authority and not a unified legitimate authority; the difference between the two is quite significant. A unified legitimate authority requires that the legitimate authorities that exist in banks are invalidated so that only one legitimate authority would be responsible for all banks. On the other hand, the presence of a supreme legitimate authority does not require the cancellation of existing legitimate authorities since it is an authority that will supervise, set criteria and pass laws and would further become a reference; the decisions of which would be binding.
The establishment of such authority necessitates several conditions. For example, the authority would be established by government decree in order for its decisions to be binding. Moreover, the supreme authority should not include any members of legitimate authorities of financial institutions so as to ensure its neutrality and independence.
Its members should be qualified and should have the appropriate legitimate background since issuing a ruling is part of perceiving it and due to the complications of financial matters the authority should include a committee of economic and banking experts so that they can help in understanding the issues presented to it. The autonomy of those experts is extremely important so that there is no influence upon the decisions of the supreme authority and the autonomy of its resolutions. The powers of the authority will include setting the standards for legitimate authorities of Islamic banking institutions to acquire membership to the authority, making laws and regulations, regulating the relationship between the supreme authority and the financial institutions that it will supervise, regulating the decision making process within these authorities and the way in which resolutions are drafted and why, as well as highlighting the position adopted by the authority.
The supreme authority will also monitor the legitimate authorities as they implement these rules and regulations and the degree of their compliance to its issued rulings in case of any conflict between legitimate authorities. The issuing of a legitimate opinion by the supreme authority is considered an end to dispute as no legitimate authority would then be allowed to act against this decision since the decrees of the supreme authority are binding.
The supreme legitimate authority is also permitted to inspect and monitor the duties of Islamic banking institutions and legitimate authorities without any restraint or required permission from any reference or authority. The supreme authority is obliged to issue a quarterly report in which it shall indicate the degree of compliance of Islamic banking institutions to Islamic Shariaa as well as the violations that have taken place, along with an assessment of every Islamic service and of Islamic financial institutions that reflect this commitment. These reports will be transparent.
The truth is that the establishment of such authority will be of great benefit to all entailed parties that include central monitoring institutions such as the central bank and the stock market, the main activities of which include verifying that those financial institutions commit to what they pledged to their customers and thus act in accordance with Islamic Shariaa and to ensure that the beliefs of their customers are not manipulated. In addition, this helps to standardize competition within the market so that the issue of jurisprudential dispute would not be part of competition but rather the quality and diversity of these services would become the point of competition between institutions. Moreover, the interest of the financial institutions is taken into consideration whereby competition would be fair; as for the customer, s/he is assured that the services that are on offer to him/her comply with Islamic Shariaa in word and deed.
God destined the kingdom of Saudi Arabia to be home to the Supreme Authority for Supervision and Auditing of Islamic Banks that is affiliated to the General Council for Islamic Banks and Financial Institutions. This is why I call upon the Saudi Arabian Monetary Agency and the stock market to make the most of the presence of such authority and to resort to it as a supreme authority for Islamic banking in the kingdom or at least refer to it as an advisory body in order to control the issuing of financial fatwas in cases of dispute.