Marzunisham Omar: Launch of Association of Islamic Banking and
Financial Institutions Malaysia's Integrity Year 2023
Speech by Mr Marzunisham Omar, Deputy Governor of the Central Bank of Malaysia
(Bank Negara Malaysia), at the Launch of Association of Islamic Banking and Financial
Institutions Malaysia's (AIBIM) Integrity Year 2023, Kuala Lumpur, 14 February 2023.
* * *
Assalamu'alaikum and a very good morning to distinguished guests. It is with great
pleasure and gratitude to AIBIM that I am able to be with you today to speak on a topic
that is close to my heart. Integrity, as this audience is aware, is the cornerstone of any
well-functioning financial system. Throughout history, we have seen the damaging
consequences from bank runs, financial market meltdowns and other financial shocks
that occur when the public can no longer count on financial institutions to do the right
thing in private.
And yet, cases of corruption and financial mismanagement continue to abound.
Trust is central to banking. If we already know how badly things can go when trust
breaks down, why is integrity - or rather, the lack thereof - still an issue in 2023?
Anybody here who has ever had to make a difficult life decision may understand why.
Integrity is not a given. It cannot be written or codified into existence. Integrity requires
continuous personal and institutional reflection of what our values are. Above all, it
demands of us the strongest form of ethical courage to stay true and consistent to these
values, especially when it is much easier to do otherwise.
The 2022 Corruption Perception Index published by Transparency International report
showed that Malaysia is ranked 61, compared to 51 in 2019. While Malaysia has placed
priority on addressing corruption and strengthening governance and integrity in recent
times, for example through the National Anti-Corruption plan, it is imperative for all
stakeholders to actively play their role in this very important endeavour.
Ladies and gentlemen,
Integrity holds an even more foundational place within Islamic finance. Upholding high
standards of ethical behaviour and personal integrity at all times are not simply actions
that guarantee good governance or financial stability. In our shared faith, they are
virtuous ends within themselves. Many verses of the Quran and hadiths emphasise the
importance of integrity. One such example is in Sahih Al-Bukhari 7138, where the Nabi
Muhammad s.a.w. said: "Surely! Every one of you is a guardian and is accountable for
his charges".
In today's speech, I would like to touch upon two aspects of banking where the integrity
of an institution truly comes to the fore.
One, corporate governance and workplace culture. Every individual is responsible
for their actions, but what parameters has the institution put in place to make it easier to
do the right thing?
Two, the institutional role in preserving national integrity through effective and
strict measures against money laundering and terrorism financing - more commonly
referred to as ML/TF risks.
Firstly, governance and culture. While each individual is responsible for maintaining
high standards of integrity in their personal conduct and everyday work, the institution's
management has a duty to ensure that the systems in place do not become an
impediment to individual acts of honesty, transparency and integrity. Encouraging staff
at all levels to voice their concerns, fostering an environment of healthy debate, and
championing individual examples of personal integrity in the workplace are all important
steps towards a robust check and balance system within the institution. A strong
governance framework would promote these ideals, while mitigating the worst effects of
their absence. This includes, among others, clear roles and accountabilities across all
key actors or leaders within the institution, strong whistleblowing policies, transparent
procurement procedures and a continuous commitment towards awareness training on
best practices in these. In this regard, leaders have an important role to play; from
setting the right tone from the top to exhibiting the right values and behaviours, that is
walk the talk.
Within Islamic finance, these are practices that are in line with the principle of Maqasid
Al-Shariah. The consideration of wider social welfare and the greater good should form
the basis of all personal conduct, and on a higher level, institutional decisions.
Valuebased intermediation, or VBI, similarly calls for Islamic financial institutions to deliver the
highest ethical standards in all aspects of businesses by embedding self-discipline and
continuous improvement within their operations and practices. This is in line with
Shariah principles of righteousness (or what we call ihsan) and consultation (or
istisharah ).
Ladies and gentlemen,
Let's now shift gears from the institutional to the systemic. With the continuously
evolving ML/TF landscape, banks are expected to play a more active role in protecting
the wider integrity of the financial system - and ultimately the public funds they are
entrusted with. This demands greater vigilance and awareness of trends of serious
crimes in the country and emerging threats impacting the system. It also calls for
effective responses in the form of more robust, agile controls to address these identified
trends and threat in a timely manner.
From the National Risk Assessment 2020 undertaken by members of the National
Coordination Committee to counter money laundering and to assess and facilitate the
understanding of ML/TF risk exposures, it was found that the top five high-risks crimes
that pose substantial ML/TF threats to the country are corruption, fraud, smuggling, illicit
drug trafficking and organised crimes. Corruption remains a systemic issue, and is
particularly insidious, since it facilitates and sometimes enables others significant
crimes such as fraud, drugs, human trafficking and environmental crimes.
The assessment also indicated that the banking sector is exposed to high level of ML
/TF risks. With banks as the nexus between all financial and non-financial sectors, the
banking platform has become an ideal channel to be abused for criminal activities -
including corruption.
In this regard, it is crucial that banks understand these key risk drivers to accurately
assess whether their current systems are sufficiently adequate in the face of such risks
and deploy their resources more strategically to focus on addressing specific, high-risk
areas. Some best practices for control measures include improving the ability to deter
illegal fund flows within the system, conducting swift identifications of illegal
transactions and prompt submissions of suspicious transaction reports (STR). Banks
are also highly encouraged to make good use of technological advancements to
develop more holistic monitoring and risks detection systems, allowing for more prompt
alerts and sophisticated red flag systems and stronger compliance to Anti-Money
Laundering & Counter Financing of Terrorism (AML/CFT) requirements. It goes without
saying that savvy systems alone are not the one-stop solution. This must be
complemented by continuously maintaining and upgrading relevant competencies of
AML/CFT personnel through investments in training.
Ladies and gentlemen,
I would like to take a moment here to commend the industry on the strides it has made
in the AML/CFT space over time. In particular, STRs received from the banking sector
has steadily improved in quality over the years. There is no doubt that these STRs and
the overall cooperation of banks with the relevant authorities have been useful in
supporting enforcement activities by law enforcement agencies. This includes
supporting MACC's investigations through timely responses to orders, provisions of
documents and witnesses. This cooperation has also included active participation in
public-private partnership initiatives, including the National Scams Response Centre.
As a member of the Financial Action Taskforce or FATF, Malaysia will once again be
undergoing a Mutual Evaluations Exercise in 2024 and 2025. For the uninitiated, this is
an in-depth assessment of the country's measures to combat ML/TF risks and its
compliance with the international standards set by the FATF. This will be the fourth time
for us and the last one was done in 2014. It is my hope that the stride made in
Malaysia's AML/CFT ecosystem, strong commitment of all institutions towards a
highintegrity financial system, and effective cooperation between the industry and public
authorities will be reflected in the eventual outcomes of the Evaluation Exercise. In
particular, it is paramount for all staff of reporting institutions to maintain high
professional standards, adhere to existing confidentiality requirements, and undergo
adequate AML/CFT trainings.
Ladies and gentlemen,
I would like to leave you with a line that is often quoted when speaking about integrity:
"Integrity is doing the right thing even when no one is watching". While the quote
may have been over-used, it has not dimmed its truth one bit. It is much easier to do the
right thing under other watchful eyes, the safety barriers of procedures, or even the
instruction of prescriptive rules. But oftentimes, the decisions that will matter most are
what we choose to do when nobody, but our conscience is watching.
It is when an institution knows without doubt that its people will stay the course in these
situations that it can truly claim to have achieved the ideal culture.
Before I end, I would like to congratulate AIBIM on the launch of Integrity Year 2023
and it is my sincere hope that all participants, whether in this room today or from your
respective institutions, will benefit from a deeply beneficial and fulfilling programme
planned for the rest of the year.
Thank you and Assalamu'alaikum.