• INMA Chapter 9 INMA Chapter 9 Islamic INMA firms

    • INMA 9.1.1 Introduction

      (1) This Chapter describes the nature of restricted PSIAs and sets out the responsibilities of Islamic INMA firms in relation to policies, warnings, provisions, reserves, terms of business and financial and other periodic statements. An Islamic INMA firm is an INMA firm whose authorisation includes a condition that the whole of the firm’s business must be conducted in accordance with Shari’a.
      (2) Because an Islamic INMA firm is an Islamic financial institution, it must comply with the CTRL, Chapter 9.

      Note Interest-bearing deposits are not permitted by Shari’a, so Islamic financial institutions typically raise funds through PSIAs and other Shari’a-compliant sources of funding.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015)
      Amended by QFCRA RM/2021-1 (as from 1st July 2021).

    • INMA 9.1.2 Profit-sharing investment accounts

      (1) A profit-sharing investment account (or PSIA) is an account, portfolio or fund that satisfies the following conditions:
      (a) it is managed by an authorised firm in accordance with Shari'a and is held out as such;
      (b) under a management agreement with the firm, the investment account holder (or IAH) concerned and the firm agree to share any profit in a specified ratio, and the IAH agrees to bear any loss not caused by the firm's negligence, misconduct or breach of contract.
      (2) A PSIA may be restricted or unrestricted. A restricted PSIA is a PSIA that is subject to a restriction as to where, how or for what purpose the investment funds may be invested.

      Note 1 For the Rules relating to unrestricted PSIAs — see IBANK.

      Note 2 For guidance on the treatment of PSIAs as restricted or unrestricted — see paragraphs 12 and 13 of AAOIFI's Statement of Concepts of Financial Accounting for Islamic Banks and Financial Institutions. See also Appendix D of Financial Accounting Standard FAS 5.
      (3) In this Chapter:

      owner of a PSIA includes a PSIA manager that owns the PSIA that it manages.

      Note The PSIA manager is generally the owner of the PSIA, but an owner can outsource the management of the PSIA to another person.
      Amended by QFCRA RM/2019-4 (as from 1st January 2020).

    • INMA 9.1.3 Policies — PSIAs

      An Islamic INMA firm’s policies must include the following:

      (a) how to ensure that PSIAs are managed in accordance with their IAHs’ instructions;
      (b) how to ensure that the funds of PSIAs are invested in accordance with the firm’s terms of business;
      (c) the priority of the investment of the PSIA owners’ funds and those of the IAHs;
      (d) how the interests of the IAHs are safeguarded;
      (e) the basis for allocating expenses and profits or losses to IAHs;
      (f) how provisions and reserves against equity and assets will be applied;
      (g) to whom those provisions and reserves would revert in the event of a write-off or recovery;
      (h) how liquidity mismatch will be monitored;
      (i) how the value of the PSIAs’ assets will be monitored;
      (j) how any losses incurred as a result of negligence, misconduct or breach of contract on the part of the firm will be dealt with.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA 9.1.4 PSIA managers’ responsibilities

      (1) An Islamic INMA firm that manages restricted PSIAs must warn a prospective IAH in writing that:
      (a) the IAH bears the risk of loss to the extent of the IAH’s investment; and
      (b) the IAH would not be able recover that loss from the firm, except in case of negligence, misconduct or breach of contract on the part of the firm.
      (2) In accordance with AAOIFI FAS 11, such a firm must maintain adequate provisions and reserves against equity and assets.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA 9.1.5 Terms of business

      An Islamic INMA firm that manages a restricted PSIA must ensure that the following information is included in the terms of business given to an IAH:

      (a) how and by whom the funds of the IAH will be managed and invested;
      (b) the PSIA’s investment objectives and details of its policy on diversification;
      (c) the basis for allocating profits and losses between the owner and the IAH;
      (d) a summary of the policies for valuing the PSIA’s assets;
      (e) a summary of the policies for transferring funds to and from any profit equalisation reserve or investment risk reserve;
      (f) particulars of the management of the PSIA;
      (g) particulars of the management of any other person to whom the owner has outsourced, or will outsource, the management of the PSIA, including:
      (i) the person’s name;
      (ii) the person’s regulatory status; and
      (iii) details of the arrangement;
      (h) details of any arrangement for early withdrawal, redemption or other exit and any costs to an IAH as a result;
      (i) confirmation of the IAH’s investment objectives;
      (j) how the IAH’s investment will be segregated from the manager’s funds and from any claims by the firm’s creditors;
      (k) whether funds from the PSIA will be mixed with the funds of another PSIA;
      (l) any applicable charges and the basis on which such charges will be calculated;
      (m) any fees that the firm can deduct from the profits of the PSIA.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA 9.1.6 Financial statements — specific disclosures

      (1) An Islamic INMA firm that manages restricted PSIAs must ensure that its financial statements contain the following disclosures:
      (a) the role and authority of the Shari’a supervisory board in overseeing the manager’s business;
      (b) the method used in the calculation of the zakat base;
      (c) if zakat has been paid, the amount that has been paid;
      (d) if zakat has not been paid, information to allow an IAH or prospective IAH to compute its liability to zakat.
      (2) The financial statements must also contain the following disclosures in relation to each PSIA managed by the firm:
      (a) an analysis of its income according to types of investments and their financing;
      (b) the basis for allocating profits between the owner and IAHs;
      (c) the equity of the IAHs at the end of the reporting period;
      (d) the basis for determining any profit equalisation reserve or investment risk reserve;
      (e) the changes that have occurred in any of those reserves during the reporting period;
      (f) to whom any remaining balances of any of those reserves is attributable in the event of liquidation.
      (3) Any deductions by the firm from its share of income, and any expenses borne by the firm on behalf of the IAHs, as a contribution to the income of IAHs, must also be disclosed in the firm’s financial statements if the contribution is significant.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA 9.1.7 Periodic statements

      (1) An Islamic INMA firm that manages a restricted PSIA must give an IAH a periodic statement about the PSIA at intervals agreed with the IAH. The agreed interval must not be longer than 6 months.
      (2) The firm must ensure that the periodic statement contains the following information as at the end of the period covered by the statement:
      (a) the number, description and value of investments held by the PSIA;
      (b) the amount of cash held by the PSIA;
      (c) details of applicable charges (including any deductions of fees that the firm is allowed to deduct from the profits of the PSIA) and the basis on which the charges are calculated;
      (d) the total of any dividends and other benefits received by the firm for the PSIA;
      (e) the total amount, and particulars of all investments transferred into or out of the PSIA;
      (f) details of the performance of the IAH’s investment;
      (g) the allocation of profit between the owner and the IAH;
      (h) any changes to the investment strategies that could affect the IAH’s investment.
      Derived from QFCRA RM/2014-4 (as from 1st January 2015).

    • INMA 9.1.8 Displaced commercial risk

      Note These rules, the instructions for preparing returns and the returns themselves do not (yet) have provisions on how to deal with this risk. Those provisions are to be inserted in the second and third phases of these rules or included in a separate set of Rules on Islamic finance.

      Derived from QFCRA RM/2014-4 (as from 1st January 2015).