Islamic Financial Services Board consults on revised risk management standard for takāful undertakings

The Islamic Financial Services Board has issued a proposed revision of its risk management standard for takāful undertakings, aligning it with the 2022 Takāful Core Principles and updated international insurance practices. The draft strengthens fund level risk management, internal controls and risk based supervision, with particular emphasis on the financial soundness of the Participants’ Risk Fund, fund segregation, fiduciary conflicts, operator remuneration, underwriting surplus, qarḍ and Sharīʻah noncompliance risk. Under the proposals, each Participants’ Risk Fund would maintain minimum retained reserves and undergo forward looking solvency and stress assessments. Management fees would require independent actuarial assessment and periodic review, while contribution pricing could not leave the fund below its assessed financial needs. Surplus distributions would be barred when reserve requirements are unmet, the fund is in deficit or it depends on financial support. Recurrent or prolonged qarḍ, an interest free loan from the Shareholders’ Fund, would trigger closer assessment and corrective action rather than substitute for addressing underlying weaknesses. Supervisors would assess takāful undertakings at both enterprise and individual fund levels, supported by fund specific reporting, risk registers and escalation thresholds. Responses to persistent weakness could include changes to contributions, expenses, operator remuneration, underwriting, retakāful or surplus distributions, and potentially restructuring or orderly run off where a fund is structurally unviable. The standard would apply proportionately to family, general and composite takāful undertakings, including windows and subsidiaries with appropriate modifications, but would exclude retakāful undertakings.