4.1 The Board is responsible for providing robust oversight and a sound monitoring function to ensure that IAs are managed in the best interests of IAH.

4.2 The Board must ensure that profit equalization internal policies, procedures and controls are developed and periodically updated in order to ensure adequate and prudent profit equalization. The Board must ensure that the internal policies, procedures and controls are adequate and duly approved by the Internal Shari’ah Supervision Committee (“ISSC”).

4.3 The Board must review and approve the policies and strategies of the investments, and strategies for the management of DCR, and conduct regular reviews of the investment policies and the performance of the asset portfolio in which IAHs funds are invested.

The broad policies and strategies must address, inter alia, the following areas:

1. The management of DCR, including the limits to and tolerance level of DCR;
2. the policies and mechanisms used in respect of the IB forgoing its share of profits in favor of the IAH; and
3. appropriations to reserves and provisioning, in accordance with the agreed contractual terms and conditions for IAH.

4.4 In order to ensure that profit equalization, including utilization of reserves such as PER and IRR, are appropriately checked and monitored, the Board must form an independent committee (“the Committee”) mandated to scrutinize the utilization of such reserves and to make appropriate recommendations to the Board. The Committee shall coordinate and integrate the implementation of the governance policy framework, with the primary objective of protecting the interests of stakeholders, other than the shareholders, in line with the HSA and ISSC resolutions.

4.5 The Committee shall comprise of at least three members:

1. an independent non-executive director (preferably chairing the Committee);
2. a member of the Board; and
3. a member of the ISSC.

Any increase of membership in the Committee must be filled by independent non-executive directors.

4.6 The Board or its committees must ensure rigorous and diligent oversight policy, process and procedures over the following:

1. the financing and investment activities undertaken by the IB using IAH’s funds;
2. the fiduciary duties performed by the IB, which must be in accordance with the terms and conditions of the Mudarabah and Wakala contracts between the IB and its IAH; and
3. the level of reserve allocation, ensuring that it is appropriate and fair to both existing and new IAHs.

Further, as a part of systems and controls, compliance, internal Shari’ah compliance, internal audit and internal Shari’ah audit functions of the IB must verify the compliance of the IB to approved policies and procedures relating to profit calculation and equalization.

4.7 The Committee shall also evaluate the disclosures made by the IB regarding its asset allocation and investment strategies in respect of IA, in order to monitor closely the performance of IB as managers of such accounts.

4.8 The ISSC must ensure that all IB’s practices related to profit equalization are Shari’ah compliant. This includes reviewing and approving the establishment and any changes to:

1. the internal policies and procedures related to profit equalization,
2. the contractual arrangements between IAHs and the IB, including terms and conditions and the profit equalization arrangements,
3. the profit distribution mechanisms as well as the profit distributed, including appropriation to the PER and IRR,
4. the maintenance of the PER and IRR and their deployment, and
5. the policy regarding liquidation of PER and IRR.