Islamic Finance Body Delays Sukuk Rule Change

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has been compelled to delay implementation of its proposed Standard 62 rule change after facing substantial opposition from investors across the global sukuk market. The organization’s Secretary General, Omar Mustafa Ansari, confirmed in an interview with Bloomberg News that the planned modification to sukuk securities rules has been put on hold following what market participants described as an ‘outcry’ from the investment community. This regulatory retreat represents a significant victory for market participants who had raised serious concerns about the potential consequences of the proposed changes.

The depth of investor concern became apparent as market participants warned that the Standard 62 proposal could fundamentally upend the structure and operation of the $1 trillion Islamic bond market. Sukuk securities, which represent one of the fastest-growing segments of global finance, have gained prominence as Sharia-compliant investment vehicles that adhere to Islamic financial principles. The proposed rule change threatened to disrupt established market practices and valuation methodologies that have developed over decades, creating uncertainty among both issuers and investors about the future direction of Islamic finance regulation.

In response to the market reaction, AAOIFI has committed to conducting at least one additional round of comprehensive consultations with key stakeholders before making any final decision on Standard 62. According to Secretary General Omar Mustafa Ansari, these discussions will involve central banks, major sukuk issuers, rating companies, and legal experts specializing in Islamic finance. This expanded consultation process reflects the organization’s recognition that significant regulatory changes require broad-based support from market participants to ensure smooth implementation and maintain market confidence.

The inclusion of central banks in the consultation process is particularly significant, given their role as both regulators and major participants in the sukuk market through sovereign and quasi-sovereign issuances. Rating companies bring crucial perspective on how the proposed changes might affect credit assessments and market liquidity, while legal experts can address potential conflicts with existing contractual arrangements and jurisdictional requirements. Major issuers, who ultimately bring sukuk to market, provide practical insights into how the proposed rules would affect deal structuring, pricing, and investor demand.

This collaborative approach represents a departure from AAOIFI’s standard procedure and underscores the sensitivity of the proposed changes. The organization, which serves as the global authority for Islamic finance standards, typically follows a more centralized decision-making process, but the scale of market concern has necessitated a more inclusive approach to stakeholder engagement.

The delay in implementing Standard 62 provides temporary relief to market participants but leaves fundamental questions unanswered about the future direction of sukuk regulation. The $1 trillion Islamic bond market has experienced remarkable growth over the past decade, attracting both traditional Islamic finance participants and conventional investors seeking diversification. However, this growth has also highlighted tensions between maintaining strict Sharia compliance and accommodating the practical requirements of global capital markets.

The proposed Standard 62 changes come at a critical juncture for Islamic finance, as the sector seeks to balance religious principles with the need for standardization and interoperability with conventional financial markets. Market participants had expressed concern that the proposed rules could create fragmentation within the sukuk market, potentially undermining the harmonization efforts that have characterized the sector’s development in recent years. The delay provides an opportunity for more thorough assessment of how the changes might affect market liquidity, pricing efficiency, and cross-border investment flows.

As AAOIFI moves forward with its additional consultation rounds, market observers will be watching closely for indications of how the organization plans to reconcile investor concerns with its regulatory objectives. The outcome of these discussions will not only determine the future of Standard 62 but could also set important precedents for how Islamic finance standards are developed and implemented in an increasingly interconnected global financial system.