The Communique on Compliance with Principles and Standards of Interest-Free Banking, published by the Banking Regulation and Supervision Agency, entered into force following its publication in the Official Gazette (30888) on 14 September 2019.
The communique aims to regulate the procedures and principles regarding the structures and processes to be established by participation banks and development and investment banks which finance their clients in accordance with the Regulation on Financing Transactions of Banks (published in the Official Gazette (26333) on 1 November 2006).
As per the communique, banks that are under the scope of the communique must establish an advisory committee which will work under the supervision of their boards of directors (advisory committee) to ensure their compliance with interest-free banking principles and standards. The advisory committee must be composed of at least three members, which will be elected for three years. The criteria for advisory committee members are further detailed in Article 5 of the communique. The duties of advisory committees are to:
- establish sole resolutions for banks in relation to the interest-free banking principles and standards;
- examine internal regulations of banks for interest-free finance principles and standards;
- evaluate and approve standard product or services agreements for banks regarding interest-free banking principles and standards;
- provide periodic reports including its resolutions for advisory boards (established by the Turkish Participation Banks Association);
- provide opinions to the legal, audit or other consultants of banks and their consolidated affiliates in relation to interest-free banking principles and standards; and
- provide information regarding advisory committees' in-term activities to be included in the banks' yearly financial reports.
It is important to ensure the independence of advisory committees and the communique states that advisory committees will adopt their decisions independently without the influence of upper management or any other relevant party. Further, the communique sets out ground rules for banks.
Under the communique, banks that are under the scope of the communique must also form an advisory committee secretariat by hiring a sufficient number of personnel to enable the advisory committee to fulfil its obligations. The secretariat's main duties are to:
- inform advisory committee members regarding the agenda (including information and documents about the agenda) and meeting time;
- prepare meeting resolutions;
- inform personnel regarding advisory committee resolutions; and
- procure the advisory committee's opinion regarding any topics that fall under the scope of interest-free banking for applications from inside or outside the bank and inform bank personnel or concerned parties regarding the advisory committee's opinion.
The compliance activities include checks of:
- services provided and agreements (with clients, service providers and third parties), investments and transactions undertaken;
- regulations within the bank, financial statements and activity reports; and
- relationships with shareholders and personnel, which must comply with the principles and standards of interest-free banking and the advisory committee's resolutions.
The communique also establishes obligations for boards of directors of banks that are under the scope of the communique, including:
- notifying personnel regarding advisory committee resolutions;
- taking relevant measures to ensure that advisory committee and secretariat members have no conflicts of interest and have full access to information and documents deemed necessary in that regard;
- arranging educational programmes for advisory committee and secretariat members;
- regulating policies in relation to public disclosures regarding advisory committee resolutions in the event of incompatibility with advisory committee decisions and taking all relevant measures to rectify this incompatibility;
- determining the operation of products and services according to interest-free banking principles and standards; and
- determining policies regarding the disclosure of advisory committee resolutions.
The communique also states that the obligation of development and investment banks to set up an advisory committee can be outsourced, provided that the institution to provide such services has been approved by the Turkish Participation Banks Association.
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