ROLES OF SHARIAH ADVISORY COUNCIL

SHARIAH ADVISORY COUNCIL

SAC is defines as “the Shariah Advisory Council on Islamic finance established under section 51”
Section 51(1) allocates the authority of the BNM to establish the SAC and clarifies its jurisdiction and
functions as follows:

“The Bank may establish a SAC on Islamic Finance which shall be the authority for the ascertainment of
Islamic law for the purpose of Islamic financial business.”

Section 52(1) provides that the SAC shall have the following functions:

to ascertain the Islamic law on any financial matter and issue a ruling upon reference to it in
accordance with this part;

to advise the Bank on any Shariah issue relating to Islamic financial business, the activities or
transactions of the Bank;

to provide advice to any Islamic financial institution or any other person as may be provided
under any written law.

1. ROLE OF SYARIAH ADVISORY COUNCIL (SAC)

The Bank and Islamic financial institutions to consult Shariah Advisory Council

Section 55 central bank act 2009

(1) The Bank shall consult the Shariah Advisory Council on any matter—

(a) relating to Islamic financial business; and

(b) for the purpose of carrying out its functions or conducting its business or affairs under this Act or any
other written law in accordance with the Shariah, which requires the ascertainment of Islamic law by the
Shariah Advisory Council.

(2) Any Islamic financial institution in respect of its Islamic financial business, may—

(a) refer for a ruling; or

(b) seek the advice, of the Shariah Advisory Council on the operations of its business in order to
ascertain that it does not involve any element which is inconsistent with the Shariah.

EXPLANATION TO SECTION 55

• Role of SAC in consulting Bank and any Islamic financial institution in any matter related to Islamic
financial business and for the purpose of carrying out its function under this Act or any other written law
that is in accordance with Syariah law that require ascertainment of Islamic law by SAC.
Reference to Shariah Advisory Council for ruling from court or arbitrator

Section 56

(1) Where in any proceedings relating to Islamic financial business before any court or arbitrator any
question arises concerning a Shariah matter, the court or the arbitrator, as the case may be, shall— (a)
take into consideration any published rulings of the Shariah Advisory Council; or (b) refer such question
to the Shariah Advisory Council for its ruling.

(2) Any request for advice or a ruling of the Shariah Advisory Council under this Act or any other law
shall be submitted to the secretariat.

EXPLANATION TO SECTION 56

When there is a case relating to Islamic financial business and any question arises pertaining to Syariah
matter, the court or arbitrator shall take into consideration any published ruling of SAC, or refer such
question to SAC for a ruling. Any request for advice or ruling shall be submitted to secretariat.

Effect of Shariah rulings

Section 57 Any ruling made by the Shariah Advisory Council pursuant to a reference made under this
Part shall be binding on the Islamic financial institutions under section 55 and the court or arbitrator
making a reference under section 56.

EXPLANATION TO SECTION 57

Stating about the effect of Syariah rulings that any ruling by SAC under this Part shall be binding on the
Islamic Financial Institution.

Shariah Advisory Council ruling prevails Section 58

Where the ruling given by a Shariah body or committee constituted in Malaysia by an Islamic financial
institution is different from the ruling given by the Shariah Advisory Council, the ruling of the Shariah
Advisory Council shall prevail.

EXPLANATION TO SECTION 58

When there is inconsistency of ruling between any of Syariah Body or committee of Islamic financial
institution with SAC, SAC shall prevail.

BACKGROUND

On 30 June 2013, the Financial Services Act 2013 (“FSA”) and the Islamic Financial Services Act 2013
(“IFSA”) (collectively referred to as “Acts”) have come into effect by substituting and repealing the
Banking and Financial Institutions Act 1989, the Insurance Act 1996, the Payment Systems Act 2003, the
Exchange Control Act 1953, the Islamic Banking Act 1983 and the Takaful Act 1984. Highlights of the
Financial Services Act 2013 and the Islamic Financial Services Act 2013

A key difference between the FSA and the IFSA is the introduction of a new Part IV of the IFSA to
strengthen Shariah governance whereby Islamic financial institutions shall ensure end to end sharia
compliance with regards their policies, procedures and operations.

Powers of Bank Negara Malaysia Under the Acts, BNM is empowered to assume control over the
whole or part of business, affairs or property of the financial institution, to manage it or appoint any
person to manage it on behalf of BNM and to designate a bridge institution when certain circumstances
arise.

ROLE OF SYARIAH ADVISORY COUNCIL (SAC) UNDER IFSA 2013

SAC/SAB is a body set up by the Islamic bank’s authorities to ensure the operations and activities of the
bank are Shariah compliant.

The Islamic Financial Services Act 2013 (IFSA) which came into effect from 30 June 2013.

It is a step for Islamic financial institutions to ensure Shariah compliance in the Islamic Finance practice.

A close monitoring and supervision by the regulators, namely Bank Negara Malaysia and Securities
Commission Malaysia.

Section 30 of IFSA 2013 It requires an institution to apply directly to the Central Bank for the
establishment of Shariah Committee. This will enable the Central Bank to have direct information as to
the members of the Shariah Committee in an Islamic financial institution, which at the same time, to
ensure a proper supervision towards the activities conducted.

Section 29 of IFSA 2013

(1) The Bank may, in accordance with the advice or ruling of the Shariah Advisory Council, specify
standards—

(a) on Shariah matters in respect of the carrying on of business, affair or activity by an institution which
requires the ascertainment of Islamic law by the Shariah Advisory Council; and

(b) to give effect to the advice or rulings of the Shariah Advisory Council. This Section 29 stipulates that
Islamic financial institutions under the Act required to comply with Shariah standards issued by the
regulator in accordance with the advice of the Shariah Advisory Council, Bank Negara Malaysia.