3 Simple Steps to Creating an Evergreen Compliance Strategy for Islamic Funds and Structures

According to a recent report from the General Council for Islamic Banks and Financial Institutions (CIBAFI), the global Islamic funds market has grown by more than 300% over the last decade and currently includes nearly $200 billion in assets under management.

As one of the many rising stars in socially responsible investing, Shariah-compliant funds and structures require more than the average level of care for compliance.

On top of the relevant regulatory regime, a great deal of attention must be paid to a comprehensive set of rules and requirements as guided by Shariah principles. Some of these requirements include an appointed Shariah board, an annual Shariah audit, and purifying certain types of income.

Despite the challenges, an evergreen compliance strategy is within reach for Islamic funds and structures—and you don’t need to ditch your existing framework, either.

Here are three simple steps to making your compliance strategy adaptable enough to weather market and regulatory changes for years to come.

Keep pace with change

Regulatory changes are already frequent in the UK, and the pace is only expected to increase as the full impact of Brexit continues to make itself felt. Keeping abreast of change is easier said than done, but the impact of new regulation can be massive, so it’s well worth paying close attention.

If that sounds overwhelming, consider hiring a third-party administrator to do the heavy lifting for you. Having a team of well-informed advisors to explain the impact of upcoming regulations on your business—and the steps you should take today to mitigate potential damage—is no longer a luxury. It’s a necessity.

For example, when Capital Gains Tax rules changed in the UK in 2021, Fairway ensured the seamless filing of relevant tax returns for our clients with no disruption to their operations—saving them hundreds of hours of work and headache (not to mention potential regulatory breaches).

We closely monitor everything in line with the Jersey Financial Services Commission (JFSC) to ensure we always understand the latest changes that will impact our clients. A funds administrator helps you rest easy knowing that you’re meeting regulations and always compliant.

Streamline administrative processes

The average multinational financial services firm spends hundreds of millions of pounds on compliance each year. With so much at stake, even minor inefficiencies can have major consequences.

Just as a team of compliance experts is best equipped to stay tuned in to regulatory changes, expert fund administrators can streamline your back office and optimise efficiencies. A third-party administrator can easily pay for itself by introducing such efficiencies as:

• A done-for-you audit trail
• Streamlined back office and fund accounting
• Bespoke investor reporting
• Asset custody
• Well-informed regulatory compliance
• Process recommendations to mitigate risk

This last point being especially relevant  given recent sanctions, which are at the forefront of daily life for many firms. When sanctions are imposed, you need to be able to react immediately by assessing the impact via a risk committee.

Participate in consultation periods

Regulators publish consultation papers whenever new regulations or guidelines are being considered. It is in every firm’s best interest to respond to regulators with feedback whenever significant changes are proposed.

As a group, Fairway’s superior compliance team takes full advantage of the opportunity to provide early feedback and to oversee compliance at the highest levels. We also stay in close correspondence with our clients to provide updates and feedback, ensuring the firm isn’t exposed to any new risks and recommending internal changes where necessary.

In short, having a third-party fund administrator allows you to effortlessly keep your compliance strategy evergreen. You’ll navigate the regulatory environment with ease knowing that a dedicated team of experts is at your fingertips.

The challenges facing Shariah-compliant structures are similar to those in conventional asset management—but the solutions are sometimes unique, and there is no substitute for experience.

Dominic Coyne, Director - Funds