KUALA LUMPUR: The new legal framework for Islamic banking and takaful, that will come into force this year, will pave the way for the development of an end-to-end Syariah-compliant regulatory framework for the conduct of Islamic financial operations, said Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz.
The new framework would provide clarity on the fundamental requirements of Syariah that must be adhered to for the contractual arrangements between the financial institution and the customer to remain enforceable, she said.“The framework also outlines the operational requirements for the effective application of Syariah principles in the conduct of Islamic financial institutions.“This aims to strengthen the risk management practices beyond the traditional credit, market and liquidity risks to also include inventory risk, ownership risk and Syariah compliance risk,” Zeti said at the opening of the Brunei Darussalam Islamic Investment Summit 2013.
The text of her speech titled, “Tapping and Expanding the Global Investment Opportunity in Asia’s Market”, was made available here today.
She said the legislation also provided for the resolution of Islamic financial institutions to be in line with distinctive elements of the relevant Islamic contracts, thus improving the legal and procedural aspects for the orderly resolution of Islamic financial institutions.
On the Islamic finance development, Zeti said the new wave of internationalisation for Islamic finance required increased collaboration across jurisdictions. — Bernama
to strengthen the international financial infrastructure of Islamic finance.“This is to ensure that the greater internationalisation of Islamic finance takes place in an environment of financial stability,” she added.
At the national level, Zeti said the first priority relates to trend for the domestic Islamic financial system to become more integrated, allowing for risks to be rapidly transmittal, across the financial system.“This requires the development of enhanced regulatory, supervisory and legal frameworks that are also adaptive and effective to the innovative dynamics and unique mix of risks in Islamic finance,” she said.
Zeti said the increased cross-border reach of Islamic finance has also underscored the importance of enhanced cross-border collaboration among the supervisory authorities.“Information-sharing and effective coordination among supervisors will enable a complete understanding of the entire risk spectrum of the risk taking activities undertaken across jurisdictions by the Islamic financial institutions,” she added.
Another key area is the evolution of the legal framework for Islamic finance to provide greater certainty and to build public confidence in the system as a whole, said Zeti.“This necessitates a legal framework that enforces end-to-end Syariah compliance in the Islamic financial services industry - through provisions and mechanisms that unambiguously define the conduct and governance of Islamic financial institutions,” she added.
Zeti also said with greater liberalisation, Islamic finance was increasingly supporting regional and international trade and investment flows, intermediating significant cross-border financial flows.“With its internationalisation, Islamic finance has become an increasingly more important channel for the efficient allocation of Asia’s surplus funds towards productive investments in the region,” she added.
Zeti also said efforts to strengthen the foundations for Islamic finance to ensure its continued resilience, amid the more challenging environment, must remain a priority going forward into the future.“Indeed, our commitment to act guided by this foresight will strengthen the prospect for Islamic finance to realise its potential in the region and beyond,” the governor added.
(The Star Online / 21 June 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com