Kyrgyz Bank Faces Scrutiny Over Compliance with Sharia Standards and Banking Practice

Investigation Launched into Commercial Bank’s Compliance

The National Bank of the Kyrgyz Republic has launched an investigation into a major commercial bank’s compliance with Islamic financial standards and safe banking practices. The probe was triggered by reports that the bank had failed to implement adequate internal controls and risk management systems.

Shortcomings in Internal Control System Revealed

According to sources, the bank had not maintained accurate and up-to-date records of its daily operations, leading to concerns about the integrity of its financial statements. Additionally, there were allegations that employees had been involved in unauthorized transactions, raising questions about the bank’s compliance with Sharia standards approved by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

The investigation has revealed several shortcomings in the bank’s internal control system, including:

• Lack of comprehensive regulation governing accounting records and entries
• Inadequate monitoring of daily operations, leading to inconsistencies between personal accounts and ledger data
• Failure to conduct regular reconciliations and verification of transactions
• Lack of documentation trail for all bank operations
• Inadequate training of staff in compliance risk management

Compliance-Control Service Established

In response to the investigation, the bank’s Management Board has established a new Compliance-Control Service, which will be responsible for ensuring the bank’s compliance with Islamic financial standards and banking regulations. The service will be headed by an independent professional who will report directly to the Bank’s Board of Directors.

The Compliance-Control Service will develop a comprehensive compliance program that includes measures to detect, measure, monitor, and control compliance risk. The service will also conduct regular checks on the bank’s operations to ensure compliance with relevant laws and regulations.

Regular Reporting Required

The Compliance-Control Service will submit regular reports to the Bank’s Board of Directors on any significant shortcomings or events that may lead to compliance risks. The reports will provide recommendations for improving the effectiveness of the bank’s internal control system and ensuring compliance with Sharia standards and banking regulations.

National Bank Emphasizes Importance of Effective Internal Controls

In a statement, the National Bank emphasized the importance of implementing effective internal controls and risk management systems in commercial banks operating in the Kyrgyz Republic. “The integrity of the financial sector is crucial to maintaining public trust and stability,” said a spokesperson for the National Bank. “We will continue to monitor compliance with Sharia standards and banking regulations closely and take decisive action against any bank that fails to meet these standards.”