On the Malaysian national Shari'ah board:
"The existence of the national board is important as it is the check-and-balance mechanism for the syariah advisory services, in the absent of any regulating body. "
The national Shari'ah board does provide oversight in the types of products that can be used by Islamic financial institutions. This is probably the area where there is most disagreement regarding the move towards standardizing Islamic products versus allowing for innovation in new structures. They provide checks and balances only in whether products offered fit within their rules for what is and is not Shari'ah-compliant. They are not responsible for overseeing the conduct of the Shari'ah scholars in how they approve and review products, and to assess continuing compliance in Shari'ah audits. A few surveys of Islamic financial institutions (including in Malaysia) reveal a gap in the Shari'ah audit process where the auditors may in some cases not be well enough trained in understanding the Shari'ah rules laid down by the Shari'ah board in their fatwa, being instead more focused on auditing the financials.
On scholars' conflict of interest from sitting on multiple boards:
"regulators, working with the industry and standard-setting bodies, must play a role to ensure the syariah (conflict of interest) risk, actual or perceived, is minimised.The lack of more organizations that set down standards for Shari'ah scholars in their professional conduct is an important gap. Shari'ah scholars may all act honestly when they are issuing their rulings to Islamic financial institutions, and may already address their conflicts of interest (actual or potential) so that it does not affect their ability to provide a fatwa that reflects only their true belief in the Shari'ah-compliance of a product. However, if there were a public instance where there were questions (for example, about whether the scholar had a pecuniary interest in an Islamic financial institution), there are no standards by which a situation could be judged.
For example a syariah scholar who sits on the syariah board of a particularly entity should not have a vested business interest in the entity in order to preserve the integrity of the scholar and avoid any conflict of interest.
Furthermore, another possible way to ensure the effective implementation and enforcement of syariah governance is to have a global market-driven entity to establish syariah advisory standards for the scholars. For example, in Malaysia, we have established the Association of Shariah Advisors that will draft the standards and code of conduct for syariah advisers and eventually issue licence for those who want to practice in syariah advisory services. This body will ensure that all its members will uphold integrity in providing their syariah advisory services by abiding to a strict code of conduct and guideline."
It is also important for there to be standards decided, made publicly available, as well as a regular review process for Shari'ah scholars, not because there is a widespread problem, but because of the ramifications if a problem occurred. The Islamic financial institution relies on the process of assessing Shari'ah-compliance of products and institutions to a large degree. If there were problems, the reputational damage would spread across the industry as consumers lost trust in the ability to rely on the fatawa stating that scholars were reviewing products and institutions for Shari'ah-compliance on an ongoing basis. Trust is a commodity that is very difficult to repair if it is damaged, and it will be far less costly to put in place ways of spotting problems in advance than it will be to clean up any problems.
On self-regulation by scholars:
"Scholars, as consultants, are similar to other individuals or bodies that provide services to banks, companies and governments. To date, there is no comprehensive governance framework regulating the syariah advisory services across the globe.
Therefore, similar to other professions such as lawyers, medical practitioners, etc. It is vitally important to have a self-regulated industry syariah advisory body to preserve the industry's integrity. Although syariah advisory services are different from the dimension that is religious-driven, it should have its own code of conduct as Islam emphasises integrity in all undertakings."
As mentioned above, there should be standards for Shari'ah scholars conduct in dealing with actual or potential conflicts of interest, and in how they interact with the management of the companies who they are overseeing. Just because it would be beneficial to have a set of standards and a regular review process does not preclude these standards from being designed by the scholars themselves to ensure that their fellow scholars have sufficient knowledge of finance to dig through the massive offering documents and reams of product documentation and understand how the products work. They are also, being dependent to some degree upon the reputation of the industry as a whole, motivated to enforce any failings in meeting the standards.