PETALING JAYA: Takaful operators like Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd, a unit of MNRB Holdings Bhd, are aggressively strategising their operations to ensure profitable growth and taking advantage of the five-year time frame given to composite takaful players to fully comply with the new Islamic Financial Services Act (IFSA).
Under the Financial Services Act (FSA) and IFSA, which came into force on July 1, composite insurers and takaful players would be, among others, required to split their life and general insurance businesses under separate licences.
Takaful Malaysia group managing director Datuk Mohamed Hassan Kamil told StarBiz that as takaful operators are given the five-year time frame by Bank Negara to fully meet the terms of the new Act, the company would be devising and evaluating an array of potential options to achieve more efficient solutions from the capital management and shareholder return perspectives.
“We would review and evaluate all this. Hence, it is unlikely for the changes to materialise in the current financial year. The takaful industry players have yet to digest the full breadth of the IFSA to decide what would work best for them, going forward, especially towards sustainable growth of the takaful markets. This would definitely take time, as financial institutions need to better understand the application of the IFSA,” he added.
On whether the Act would take a hit on Takaful Malaysia’s bottomline in view of the split in operations of its family (life) and general businesses, Hassan said although there would be potentially higher cost initially due to start-up costs, in the long run, it would benefit the company and consumers as a whole, as the company would be more focused in terms of strategic planning, management, cost control and enhanced customer service. The capital position too would be further strengthened, he noted.
RHB Research, in an earlier report, said that the new ruling to split the life and general insurance businesses could have a “huge impact” on insurance firms, especially takaful players like Syarikat Takaful Malaysia and Takaful Ikhlas.
It added that the impact would be felt more deeply in the takaful industry due to the higher number of composite licences issued to them compared with their conventional insurance counterparts.
Meanwhile, Takaful Ikhlas president and chief executive officer Abdul Latiff Abu Bakar said while the split timeline given to comply was within five years, the company was looking more towards compliance with the other requirements first, of which the deadline for compliance was within a year.
“We are currently at the gap/impact analysis stage. As far as business is concerned, Takaful Ikhlas would continue to focus on enhancing its family agency business, of which new investment link products were just recently launched. It is too premature to comment on the capital and profitability.
The regulatory and supervisory framework of Malaysia enters a new stage of its development as the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) come into force on 30 June 2013. The FSA and IFSA is the culmination of efforts to modernise the laws that govern the conduct and supervision of financial institutions in Malaysia to ensure that these laws continue to be relevant and effective to maintain financial stability, support inclusive growth in the financial system and the economy, as well as to provide adequate protection for consumers. The laws also provide Bank Negara Malaysia with the necessary regulatory and supervisory oversight powers to fulfil its broad mandate within a more complex and interconnected environment, given the regional and international nature of financial developments. This includes an increased focus on preemptive measures to address issues of concern within financial institutions that may affect the interests of depositors and policyholders, and the effective and efficient functioning of financial intermediation.
It is important that Malaysia's regulatory and supervisory system is adequately equipped to respond effectively to new and emerging risks so that confidence in the financial system is preserved and that the critical financial intermediation activities which are vital to the economy are not disrupted. The FSA and IFSA amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors respectively, namely, the Banking and Financial Institutions Act 1989 (BAFIA), Islamic Banking Act 1983, Insurance Act 1996 (IA), Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date.
Key features of the new legislation include:
Greater clarity and transparency in the implementation and administration of the law. This includes clearly defined regulatory objectives and accountability of Bank Negara Malaysia in pursuing its principal object to safeguard financial stability, transparent triggers for the exercise of Bank Negara Malaysia's powers and functions under the law, and transparent assessment criteria for authorizing institutions to carry on regulated financial business, and for shareholder suitability;
A clear focus on Shariah compliance and governance in the Islamic financial sector. In particular, the IFSA provides a comprehensive legal framework that is fully consistent with Shariah in all aspects of regulation and supervision, from licensing to the winding-up of an institution;
Provisions for differentiated regulatory requirements that reflect the nature of financial intermediation activities and their risks to the overall financial system;
Provisions to regulate financial holding companies and non-regulated entities to take account of systemic risks that can emerge from the interaction between regulated and unregulated institutions, activities and markets. The Minister of Finance may subject an institution that engages in financial intermediation activities to ongoing regulation and supervision by Bank Negara Malaysia if it poses or is likely to pose a risk to overall financial stability;
Strengthened business conduct and consumer protection requirements to promote consumer confidence in the use of financial services and products;
Strengthened provisions for effective and early enforcement and supervisory intervention
The new laws will place Malaysia's financial sector, encompassing the banking system, the insurance/takaful sector, the financial markets and payment systems and other financial intermediaries, on a platform for advancing forward as a sound, responsible and progressive financial system. This is especially important to enable the financial system to meet the new demands for financing associated with Malaysia's economic transformation programme both during and beyond the next decade, the changing demographics of our population, and the increasing integration of the Malaysian economy with the region and the world.
By Kabeer Yousuf — MUSCAT — Muscat Securities Market launched ‘Sharia Index’ (MSMSI) aiming at measuring the stock’s performance of Sharia-Compliant Companies that pass the AAOIFI for compliance with the Islamic investment principles yesterday. With this launch, more individuals and corporates are expected to make use of the Islamic financial offerings in the country as a better investor sentiment and trust is created with the introduction of the Sharia Index.
AAOIFI (Accounting and Audit Organisation for Islamic Financial Institutions), the Sharia Board is an organisation in Bahrain which comprises Islamic Scholars that issue the religious guidelines to the Islamic financial institutions in the region. “I am certain that there is quite a significant number of people and bodies in our society who are keen to invest in Sharia-compliant financial products and I’m equally certain that the launch would further augment Islamic investment portfolio in the country”, Ahmed bin Saleh al Marhoon, Director-General, MSM said.
Speaking to the Observer, Al Marhoon further noted that “This is the introduction of the Islamic financial institutions and this is the time we have been working on issuing an index which is compliant with the Sharia requirements”. For the introduction of the Sharia Index, MSM has contracted with ‘IdealRatings’ to examine and analyse all the listed companies in order to make sure that those listed companies are in compliant with Sharia requirement. Also, the application of Sharia principle No 21 that is related to securities is also verified. MSMSI is a free-float Index capped at 10 per cent and the index constituents will be revised each quarter.
Marhoon further said that there has been a highly encouraging trend regarding the new IPO’s and an number of companies from both private and public sectors are on the anvil to launch their public offers. “More companies based on Sharia and power generation besides some major public sector companies are expected to launch their IPO’s this year”, Marhoon added.