PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 19

2.5 Islamic Finance

to consider issuing sukuk, which will
showcase Hong Kong’s Islamic financial
platform to local and international
issuers and investors.

Update

The IFSB on 6 December 2013 revised
guidelines on the supervision of Islamic FIs,
tightening regulatory oversight of industry
practices. The latest update complements
stricter Basel rules, expanding its original
2007 document, known as IFSB-5, to include
areas such as regulatory capital, corporate
governance, stress testing, securitisation
exposures, liquidity, concentration and
counterparty risk. The revision provides more
detailed guidance on areas such as Islamic
windows, a practice which allows conventional
banks to offer Islamic financial services
provided that clients’ money is segregated from
the rest of the bank. Islamic windows are widely
used in the industry but some regulators have
struggled to cope with monitoring their risks
and the complexity of financial reporting.

At the first meeting of the Joint Forum
on Islamic Finance between Hong Kong
and Malaysia on 3 December 2013, senior
representatives of eight commercial banks and
three fund management companies reviewed
the current developments of Islamic finance
globally and in both jurisdictions, and discussed
measures to further the development of Hong
Kong’s Islamic financial market, particularly the
sukuk market and the Islamic fund management
industry. A summary of topics discussed at the
meeting are as follows:

• Participants agreed to actively consider
launching Islamic funds and making use
of the established mutual recognition
framework for Islamic funds between
Hong Kong and Malaysia to facilitate
cross-border Islamic financial activities;
• Participants welcomed the plan by the
HKMA and BNM to jointly organise an
Islamic Finance conference in the first
half of 2014; and
• Participants agreed to enhance the
strategic financial linkages between
Hong Kong and Malaysia aimed at
facilitating cross-border investment flows
and creating greater opportunities for
investors from the region and other parts
of the world.

Hong Kong

2. Islamic funds –

1. Sukuk –
• Participants agreed to identify potential
sukuk issuers and encourage cross-border
sukuk issuances between Hong Kong and
Malaysia;
• Hong Kong market players supported
that sukuk should be offered as one of
the possible options or solutions to their
clients who have funding needs, as sukuk
can be a means for potential issuers to
expand their investor base; and
• Participants also welcomed the initiative
of the Hong Kong SAR Government

2.6 OTC Derivatives

Update

On 10 December 2013 the ISDA proposed
a standard initial margin model for market
participants to facilitate the introduction of
final BCBS-IOSCO guidelines for “Margin
requirements for non-centrally cleared
derivatives” published earlier in September. The
model was constructed based on the following
assumptions:
1. General structure of margin calculations
2. Requirement for margin to meet a 99%
confidence level of cover over a 10-day
standard margin period of risk
3. Model validation, supervisory coordination
and governance
4. Use of portfolio risk sensitivities (“Greeks”)
rather than full revaluations
5. Explicit inclusion