RESTRICTED  
  
S/FIN/W/90 /Add.1  
 
23 September 20 16 
(16-5170) Page: 1/2 
Committee on Trade in Financial Services   
 
INTERNATIONAL STANDA RD-SETTING BODIES  
RECENT DEVELOPMENTS  
NOTE BY THE SECRETAR IAT1 
Addendum  
 
1  ISLAMIC FINANCIAL SE RVICES BOARD  
1.1.  As requested by the Committee on Trade in Financial Services, t he purpose of this Addendum 
is to provide  an overview of recent standard -setting  activities  by the Islamic Financial Services 
Board (IFSB). The Note updates the information provided by  the IFSB at the meeting of the 
Committee on 14 October 2015 .2  
1.2.  To date, the IFSB has issued 18 prudential standards. The latest standard – Guiding 
Principles for Retakāful (Islamic Reinsurance)  or IFSB-18 – was issued in April 2016.  IFSB-18 
identifies and sets forth a set of basic principles and best practices pertaining to retakāful activities 
of both takāful and retakāful operators. The ob jectives of IFSB -18 include  the following : (a) To 
provide a basis for regulatory and supervisory authorities ( RSAs) to set rules and guidance on the 
operational framework of entities undertaking inward retakāful activities; (b) To outline a basis for 
RSAs to supervise takāful and retakāful undertakings’ use of outward retakāful arrangements; and 
(c) To suggest recommended best practices for retakāful and takāful operators and their RSAs to 
help address regulatory issues concerning retakāful. The standard is  therefore intended to be 
applied, by RSAs, to suppliers of takāful  and retakāful in their jurisdiction s with respect to both 
inward and outward Retakāful activities. IFSB-18 provides retakāful stakeholders with guiding 
principles on the conduct of the ret akāful business. These guiding principles touch important 
elements of the retakāful prac tice including governance, Sharia  principles, transparency, disclosure 
and supervisory review process.  
1.3.  This standard is applicable to all Retakāful undertakings, inclu ding Islamic window operations , 
i.e. units of a conventional insurance operation that are not separately incorporated and are 
managed separately by the insurer.  
Relevant trade -related aspect s 
 
Chapter B of IFSB -18 addresses various aspects of Retakāful  and its 
underlying contracts as background for the guiding principles. Two issues 
addressed in that chapter are worth noting: the situation of Retakāful 
windows (section V) and the international nature of the Retakāful 
business  (section VIII) . Regarding the f ormer, a survey carried out by he 
IFSB to better understand the nature of the industry confirmed that the 
Retakāful sector includes a number of window operations, as well as 
Retakāful operations that are subsidiaries of conventional reinsurance 
groups. The  document explains that, in the case of window operations, 
regulators and suppliers must ensure that the close association with a 
                                                
1 This document has been prepared under the Secretariat's own responsibil ity and is without prejudice 
to the positions of Members or to their rights and obligations under the WTO.  
2 The report of the meeting is contained in document S/FIN/M/8 6. S/FIN/W/90 /Add.1  
 
- 2 - 
 
  conventional reinsurance operation does not impair the Sharia  
compliance of the operation in the window.  
 
As explained in section VIII, the  Retakāful market has an international 
dimension that direct Takāful does not usually have , and that although 
some Retakāful undertakings ( RTUs) operate on a national level, Takāful 
undertakings ( TUs) may seek cover in international as well as domestic 
markets in order to avoid concentration of cre dit risk, and RTUs may seek 
cedents in different markets so as to obtain diversification of risks . IFSB-
18 further explains that "[b] ecause of the compelling economic logic, 
RSAs commonly allow TUs in their jurisdi ctions to cede business to RTUs 
outside, and do not attempt to regulate those RTUs directly. However, 
the supervisors of cede nts need to consider the appropriat eness of the 
RTUs with whom cede nts propose to arrange Retakāful cover, and the 
stability of for eign RTUs accepting risks from their territory, while the 
supervisors of RTUs need to consider the prudential issues affecting those 
RTUs arising from overseas operations and incoming business. " 
Furthermore, the " international nature of Retakāful business may l ead to 
situations where the cede nt and the RTU classify the same business 
differently, leading to potential mismatch between the scope of an RTU’s 
authorisation to write business, and some of the business that is offered 
to it." 
 
The international nat ure of Retakāful may raise specific issues related to 
Sharia  complianc e. In particular, "Retakāful operations may carry an 
enhanced risk of accepting business that is not Sharia compliant. Because 
of the international nature of Retakāful business, and beca use many 
small risks may be bundled into a single treaty, it is ordinarily 
impracticable for RTUs to perform their own Sharia  assessment of each 
and every risk t hat is presented to them by cede nts. RTUs must therefore 
place some reliance on Sharia  governan ce in cede nts." In addition, 
Retakāful operators need to consider implications where intragroup 
business involves a conventional entity and a Shari a-compliant entity.  
 
 
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