One important requirement found in regulatory requirements in most jurisdictions is the establishment of a Committee of Shari‘ah expert by Takaful Operators (TO). Depending on the jurisdiction, the title of the expert committee varies. For example, in Nigeria the Shari‘ah expert committee is designated as Advisory Council of Expert (ACE). The Nigerian Takaful Operational Guidelines require that the TO shall before starting Takaful-Insurance operations have in placed an Advisory Council of Experts (ACE) to ensure the operations are in line with best practice. This is core requirement for issuance of operational licence by the National Insurance Commission (NAICOM), the Nigerian insurance regulator, and it will be a violation of the extant rules for any TO to start Takaful-Insurance business before the approval is obtained.
The ACE is required to consist of at least three members with a mix of expertise in Shari‘ah with specialization in Fiqh al Mua’amalat and at least a member qualified and experienced in commercial financial products and services. The ACE members must be of acceptable reputation, character and integrity. The appointment or reappointment of ACE members must be subject to prior approval by the NAICOM. To minimize undue influence on the ACE, the TO is required to inform NAICOM, within 30 days, of any change and the reason for the change in the membership of its ACE. The NAICOM may require disclosure in the annual report of the TO to provide reasons for the changes in the ACE membership where the Commission deems it fit to do so in the public interest.
However, a window is provided for alternative arrangements to having an ACE. Any proposal for alternative arrangements must be made to NAICOM. Such alternative arrangements must be approved by NAICOM before commencement of Takaful-Insurance business. NAICOM may grant its approval if satisfied with explanation(s) as to why the ACE structure is not being adopted by the TO. This window envisages instances where it would be in the public interest to adopt the alternative arrangement for reasons of cost, competencies, level of development, etc.
The ACE is incorporated into the operational and governance structure of the TO and clearly responsible and accountable for all Shari‘ah decisions, opinions and views relating to the Takaful-Insurance business. The structure shall be such that it reports directly to the Board of Directors of the TO and have a dotted line (close working) reporting relationship to the Managing Director/Chief Executive Officer of the Takaful-Insurance Operator.
“THE ACE IS REQUIRED TO CONSIST OF AT LEAST THREE MEMBERS WITH A MIX OF EXPERTISE IN SHARI‘AH WITH SPECIALIZATION IN FIQH AL MUA’AMALAT AND AT LEAST A MEMBER QUALIFIED AND EXPERIENCED IN COMMERCIAL FINANCIAL PRODUCTS AND SERVICES. THE ACE MEMBERS MUST BE OF ACCEPTABLE REPUTATION, CHARACTER AND INTEGRITY. THE APPOINTMENT OR REAPPOINTMENT OF ACE MEMBERS MUST BE SUBJECT TO PRIOR APPROVAL BY THE NAICOM.”
The ACE is expected to derive consensus on its recommendations and conclusions using the appropriate, standard and accepted methodology including interpretation or analogy from the Qur’an and Sunnah. To ensure proper record keeping, the conclusions and rationale of the ACE shall be fully documented in the minutes of the ACE meetings. The Takaful Operational Guidelines clearly defines the responsibilities of the ACE to include:
- Review and endorsement of policies and guidelines related to the principles underpinning Takaful-Insurance.
- Formal compliance certification of every product that is to be offered by the TO.
- Reporting all cases of non-compliance to the Board of the TO with recommended remedial actions.
- Reporting to the Commission all cases where a TO has failed to adequately address or take remedial action of non-compliance.
- Providing a formal annual sign-off and opinion on compliance in a Report of the ACE that is to be included in the TOs annual audited financial report.
- Assist or advise related parties to the TO, such as its legal counsel, auditors or other consultants on Islamic jurisprudence-related matters upon request.
- Providing support to the Takaful-Insurance Operator and participants in respect of questions or queries that may be raised regarding the Shari‘ah (Islamic Law) compliance of products.
- Issue recommendations on how the TO can fulfill its social role and promotion of Takaful- Insurance towards enhancing financial inclusion in Nigeria.
- performance of any other duties assigned to it by the Board of the TO.
It is important to state that the introduction of the ACE as part of governance structure of TO, with direct report line to the board of directors, is a good safety net for ensuring shari‘ah compliance. The Guidelines having clearly defined the qualification, composition, functions and confidentially issues create some level of certainty on the modus operandi and expectation on the ACE. These will obviously enhance confidence on the Takaful insurance business by the participants and beneficiaries.
“IT IS IMPORTANT TO STATE THAT THE INTRODUCTION OF THE ACE AS PART OF GOVERNANCE STRUCTURE OF TO, WITH DIRECT REPORT LINE TO THE BOARD OF DIRECTORS, IS A GOOD SAFETY NET FOR ENSURING SHARI‘AH COMPLIANCE. THE GUIDELINES HAVING CLEARLY DEFINED THE QUALIFICATION, COMPOSITION, FUNCTIONS AND CONFIDENTIALLY ISSUES CREATE SOME LEVEL OF CERTAINTY ON THE MODUS OPERANDI AND EXPECTATION ON THE ACE”