An Act Providing for the Regulation and Organization of Islamic Banks

Seventeenth Congress
Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-third day of July, two thousand eighteen.

REPUBLIC ACT No. 11439

An Act Providing for the Regulation and Organization of Islamic Banks

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

Section 1. Declaration of Policy.— The State recognizes the vital role of Islamic banking and finance in creating opportunities for greater financial inclusion especially for the underserved Muslim population, in expanding the funding base for small and medium-sized enterprises as well as large government infrastructure through financial arrangements with risk sharing as their core element, and in contributing to financial stability through the use of financial contracts and services that are founded on risk sharing rather than speculation in compliance with Shari’ah principles.

Section 2. Definition of Terms.—

Section 3. Establishment of Islamic Banks.—

Section 4. Supervision and Regulation by the Bangko Sentral.— The Bangko Sentral shall exercise regulatory powers and supervision over the operations of Islamic banks. The Bangko Sentral shall issue the implementing rules and regulations on Islamic banking.

Section 5. Shari’ah Advisory Councils.— It shall be the responsibility of an Islamic bank to comply with Shari’ah principles. For this purpose, it shall constitute a Shari’ah advisory council composed of persons who are qualified in Shari’ah or who have knowledge or experience in Shari’ah and in banking, finance, law or such other related disciplines. The council shall render advice and review applications of Shari’ah principles, but it shall not involve itself directly in the operations of the Islamic bank or engage in any activity which may give rise to conflict of interest. Nothing contained herein precludes the establishment of a centralized Shari’ah Supervisory Board to ensure that the Islamic banking transactions and products comply with Shari’ah principles.

Section 6. Powers of Islamic Banks.—

Section 7. Ownership and Legal Existence.— Islamic banks to be created under this Act shall comply with pertinent laws, rules and regulations applicable to a private corporation engaged in banking, such as "The Corporation Code of the Philippines" (Batas Pambansa Big. 68), as amended, and the requirements of the respective regulatory agencies. Islamic banking units shall be operated and managed pursuant to a management and organizational structure which should be properly disclosed and segregated from the operations of the parent bank.

The capitalization requirements of an Islamic bank shall be equal to that prescribed by the Bangko Sentral for a universal bank. Islamic banks may take the necessary steps to have their shares of stock listed in any duly registered stock exchange.

Section 8. Transfer and Acquisition of Substantial Shareholdings.— No person shall acquire shares in an Islamic bank that will result in ownership or control, directly or indirectly, of more than ten percent (10%) of the voting stock of such Islamic bank, without obtaining the prior approval of the Monetary Board. Prior to the Monetary Board approval, no such transfer or acquisition of shares shall have legal effect nor shall the same be recognized in the stock and transfer books of the Islamic bank or in the records of any government agency.

Section 9. Fit and Proper Rule.— In order to maintain the quality of bank management and afford better protection to depositors, investors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications of persons who are elected or appointed as directors or officers of Islamic banks and disqualify those found unfit. The Monetary Board shall prescribe the qualifications of bank directors and officers for purposes of this Act.

Section 10. Regulatory Standards.— Islamic banks shall be licensed and regulated in the same manner as a universal bank. The Bangko Sentral shall prescribe prudential regulations and standards of conduct to promote the sound financial position of Islamic banks find to ensure integrity, professionalism and expertise in the conduct of their business, affairs and activities. These standards shall take into consideration international best practices and principles relating to, but not limited to:

Section 11. Current Accounts of Islamic Banks.— The Bangko Sentral is authorized to open current accounts for Islamic banks for settlement and other purposes under such rules and regulations as the Monetary Board may prescribe. The Bangko Sentral may charge administrative and other fees for the maintenance of such facilities as may be allowed under Shari’ah principles.

Section 12. Financial Facilities for Islamic Banks. — The Bangko Sentral may, taking into consideration the peculiar characteristics of Islamic banking, formulate rules and regulations for the extension of financial facilities to Islamic banks for purposes provided under Chapter IV, Articles IV and V of Republic Act No. 7653, as amended, otherwise known as the New Central Bank Act.

Subject to the availability of budgetary support and other funding sources, the Philippine Deposit Insurance Corporation (PDIC) may extend financial assistance to an Islamic bank determined by the Monetary Board to be in danger of closing in order to prevent such closing, or when it is determined by the Monetary Board and the PDIC Board of Directors that the continued operation of such Islamic bank is essential to the stability of the economy.

Section 13. Monetary Stabilization Policy and Tools.— The Bangko Sentral, pursuant to the authority of the Monetary Board under Section 61 of Republic Act No. 7653, to constantly assess price developments and outlook, and based on its analysis and evaluation of inflationary pressures, and its policy instruments to attain and maintain price stability, and taking into consideration the peculiar characteristics of Islamic banking, may require Islamic banks to maintain reserves against their deposit accounts and funds held in trust or under investment accounts. The Monetary Board may further identify and authorize the issuance by the Bangko Sentral of other appropriate instruments and measures necessary to implement its monetary policy, including instances of abnormal movements in the price level, taking into account the peculiar characteristics of Islamic banking.

Section 14. Tax Neutrality.— The Government shall endeavor to achieve neutral tax treatment between Islamic banking transactions and equivalent conventional banking transactions within the provisions of the National Internal Revenue Code of 1997 (Republic Act No. 8424), as amended.

Section 15. Sanctions.— Any director, officer, employee., auditor, or agent of an Islamic bank who is found guilty of any act or omission in violation of any provision of this Act and its implementing rules and regulations shall be subject to the sanctions and penalties under Sections 34, 35, 36 and 37 of Republic Act No. 7653, and shall be punished by a fine not exceeding One million pesos (₱1,000,000.00) or by imprisonment of not more than five (5) years, or both, at the discretion of the court, without prejudice to administrative and criminal sanctions that may be imposed pursuant to existing banking laws and regulations.

Section 16. Consumer Awareness and Capacity Building Program.— The Government shall provide programs for increased consumer awareness and capacity building required by the expanded Islamic banking system.

Section 17. Nonapplicability of Selected Acts.— In order to achieve the international and domestic objectives of Islamic banking, the provisions of the following laws shall not apply to Islamic banks to the extent as herein rendered inoperative:

Section 18. Separability Clause.— If any provision or section of this Act or the application thereof to any person, association, or circumstances is held invalid, the other provisions or sections and their application to such person, association, or circumstances shall not be affected thereby.

Section 19. Repealing Clause.— All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Act are hereby repealed or modified accordingly.

Section 20. Effectivity.— This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in a newspaper of general circulation.

Approved,

(Sgd) VICENTE C. SOTTO III
President of the Senate

(Sgd) GLORIA MACAPAGAL-ARROYO
Speaker of the House of Representatives

This Act which originated in the House of Representatives was passed by the House of Representatives and the Senate of the Philippines on November 20, 2018 and June 3, 2019, respectively.

(Sgd) MYRA MARIE D. VILLARICA
Secretary of the Senate

(Sgd) DANTE ROBERTO P. MALING
Acting Secretary General
House of Representatives

(Sgd) RODRIGO ROA DUTERTE
President of the Philippines

Approved: August 22, 2019.