SHARIAH GOVERNANCE We had approved in our meetings several initiatives undertaken by the Bank in strengthening its Shariah governance, including the review of the Shariah Compliance Policy and Business Zakat Guideline of the Bank and of Bank Islam Trust Company (Labuan) Limited. Such initiatives aimed, among others, to set out the Shariah governance framework within the Bank and its Group to ensure our business operations were in line with the Shariah rules and principles. SHARIAH RISK MANAGEMENT We had observed that the Bank continuously implemented appropriate measures in managing its Shariah noncompliance (“SNC”) risks. Firstly, the implementation of Risk Control Self Assessment (“RCSA”) which aimed to assess the significance of identified SNC risks and the effectiveness of the controls put in place within the respective functional areas. Since the introduction of RCSA, a continuous process of identifying and assessing SNC risks at various functional areas had been carried out by all Risk Controllers (“RCs)”. The RCs were also responsible for driving and implementing appropriate controls to mitigate any SNC events while achieving the business objectives of their respective areas. The semi-annual RCSA results, specifically on the SNC risk exposures of the Bank, were tabled in the Management Risk Control Committee and in our SSC meetings for monitoring and oversight purposes. Secondly, the Bank in this financial year had revised the methodology for SNC risk capital allocation under the Internal Capital Adequacy Assessment Process (“ICAAP”) to ensure that it had adequate capital to support its operations at all times. The revised methodology was based on the BNM’s Capital Adequacy Framework for Islamic Banks (CAFIB - effective on 31 March 2013) as well as the inclusion of the requirement of regulatory penalty/fine clauses under Islamic Finance Service Act (2013). We always treat SNC risks as material risks and hence the importance of ensuring the comprehensiveness, accuracy and currency in the methodology for computing the ICAAP capital allocation for SNC risks. Thirdly, the enhancement undertaken for the Operational Risk Integrated System (“ORIS”) which was launched in the previous year, encompassing the Shariah compliance elements in addition to Operational Risk and Business Continuity Management. The enhancement made focused on the effectiveness of system application and data completeness to further improve the management of risk profiles for all business and support units, thus reducing the probability of SNC or Shariah-related events. Finally, during RCSA Launch for the period of May 2022 to December 2022, SRM took an initiative to propose one (1) new Generic Risk : Risk of failure to implement latest Shariah decision or documents approved by SSC/Group Shariah Division which leads to SNC event. The Generic Risk, as compared to Shariah Risk, imposed greater accountability on the Bank’s staff in observing and practicing Shariah requirements and eventually inculcating the shariah risk culture in a more efficient manner. SHARIAH REVIEW & SHARIAH AUDIT The Shariah Review and Shariah Audit functions play a vital role in ensuring Shariah compliance by evaluating and assessing operations, business, affairs and ongoing activities in the Bank. Shariah Review function is performed by the Shariah Compliance Department under Group Compliance Division. The Shariah Compliance Department is responsible to conduct regular assessment and validation on the Bank’s compliance with Shariah in its operations, business, affairs and ongoing activities, covering new products and services implementation alongside adherence with relevant regulatory requirements. The Shariah Audit Department is under the Group Internal Audit Division, and is responsible to provide an independent assessment on the quality and effectiveness of the Bank’s internal control, risk management systems, governance process, and the overall compliance of the Bank’s operations, business, affairs and activities with Shariah. Both Shariah Review and Shariah Audit plans for the financial year were reviewed and noted by us for their implementation. Their reports were deliberated in our SSC meetings to confirm that the Bank had complied with the applicable rulings issued by the Shariah Advisory Council (“SAC”) of Bank Negara Malaysia, the SAC of Securities Commission (for capital market-related matters) and our decisions. Throughout the year, the Shariah Review and Shariah Audit exercises conducted covered the following entities/areas: Integrated Report 2022 232 Report of the Shariah Supervisory Council
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