This lesson examines the unique governance structures required for Islamic banks and the global regulatory bodies that oversee the industry.

2.1 The Shariah Governance Framework
An Islamic banking business firm must have a Shariah governance policy adequate for the nature, scale, and complexity of its business and for its risk profile, to ensure that the firm complies with Shariah . This framework encompasses the structures, processes, and controls needed to ensure all activities and products are Shariah-compliant.

2.2 Role of the Shariah Supervisory Board (SSB)
The SSB is the central pillar of Shariah governance. It is an independent body of Shariah scholars responsible for providing guidance, reviewing policies, approving products, and issuing Fatwas (religious rulings) on the permissibility of financial activities. The SSB’s core functions include:

• Review and Certification: Ensuring all products are compliant.

• Guidance: Advising management on Shariah matters.

• Auditing: Auditing operations for compliance.

2.3 Global Standard-Setting Bodies

• AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions): The leading international standard-setting organization for Islamic financial institutions. AAOIFI issues globally recognized standards in areas such as Shariah, accounting, auditing, ethics, and governance .

• IFSB (Islamic Financial Services Board): Issues prudential standards and guiding principles for the regulation and supervision of the Islamic financial services industry, covering risk management, capital adequacy, and corporate governance.

2.4 Regulatory Evolution: Key Standards
In 2025 and 2026, AAOIFI has accelerated standard-setting. The Governance and Ethics Board (AGEB) approved, in principle, the issuance of standards on the “Conversion of a Conventional Financial Institution into an Islamic Financial Institution” and “Digital Islamic Banks” . This reflects the industry’s evolution and its increasing integration into mainstream finance. The board also approved new Governance Standards, including GS 18 “Shariah Decision-Making Process”, and updated GS 1 (2024) “Shariah Governance Framework”, providing a comprehensive modern framework for IFIs .