This approach has proven to be successful and critical in instilling public confidence in the Shariah integrity of the industry. Whilst enacting a separate governing law avoids the trap of confining the scope and operation of Islamic finance within the mould of conventional finance, this approach has proven in Malaysia to be the most efficient way possible to regulate Islamic finance. Recently, Malaysia has undertaken the initiative to establish a Law Harmonisation Committee with the main objectives to review existing Malaysian laws which are applicable to Islamic financial transactions and to propose necessary amendments to give legal recognition to Islamic financial transactions under the law. The mandate of the Committee extends beyond those that are regulatory in nature to include all laws relevant to execute the whole chain of Islamic finance practices. The desired outcome of the Committee’s work is the creation of laws that are facilitative, contemporary, and easily enforceable. Another objective is to provide facilitative legal framework for the Islamic finance industry and develop Malaysian laws as the law of choice for international Islamic financial transactions. This initiative is consistent with our continuous effort to foster an efficient, innovative and competitive Islamic financial system, given the more globalised and liberal operating environment within which Islamic finance will operate. The consideration for evolving the legal framework in Islamic finance would not be complete without extending due regard to the robustness of Shariah governance framework. This is inevitable given that Islamic finance has its roots in Shariah.

Moving forward, with the existence of a dedicated court for Islamic finance, competent human capital and consistent legal precedents, Malaysia is well-placed to serve as a platform for adjudication and dispute settlement. The KLRCA in particular can be leveraged upon as an alternative dispute settlement mechanism for arbitrating international disputes relating to Islamic finance. Another important legal aspect in the conduct of Islamic finance is in ensuring good documentation of contracts underlying Islamic financial transactions. Legal documentation forms an integral part of Islamic finance sector as it provides a critical “bridge” between  BIS Review 161/2010  3  Shariah and Islamic finance practices. There are two major considerations in ensuring good legal documentation of Islamic financial transactions. Firstly, there is a need to ensure that the documentation conforms to Shariah in such a way that it enables the operationalisation of Shariah principles into legally enforceable Islamic finance contracts. This is crucial to avoid legal and reputational risks arising from the failure to faithfully reflect the principles of Shariah which could undermine public confidence in the industry. It also underscores the importance of legal advisors, Shariah advisors, and other key organs such as the compliance and internal audit functions, as well as the board in performing their obligations towards ensuring Shariah compliance. The importance of these various components is reflected in the newly revised guidelines on Shariah governance framework that was issued recently. The second consideration relates to the importance of moving towards greater standardization in the legal documentation of Islamic financial transactions.