However, for those banks with large client clearing volumes, disallowing client initial margins to compensate for potential future exposure may inevitably create constraints on their leverage ratios. This can dis-incentivise the provision of such client clearing services. This may have created an unintended impact on the market’s incentives and overall ability to centrally clear, which will be inconsistent with the objectives of the central clearing. Therefore, in the next phase of our work on the reforms, sector regulators will have to work closely towards greater consistency and coherence with the inputs of all market participants. Balancing between domestic market concerns and international market access 13. As each jurisdiction embarks and complete rebuilding its part of the global house, it is also important to consider how domestic rules would operate and interact across borders and against the global standards. 2/3  BIS central bankers' speeches  14. The recent comparability determination between the CFTC and the European Commission on platform trading and margins for un-cleared derivatives serves as an excellent example of how authorities have worked together to reach a common agreement and approach, bridging the requirements of two major regulatory regimes. Asia-Pacific authorities are working closely with one another as well, and also with the CFTC and EC, to address cross-border issues. Japan’s FSA (Financial Services Agency) and Australia’s APRA (Australian Prudential Regulation Authority) had also announced their recognition of various jurisdictions’ margin requirements for un-cleared derivatives, including Singapore and Hong Kong. 15.

This is particularly relevant for the Islamic financial services industry given the close link of Islamic finance with the real economic sector through the various modes of Islamic financing contracts. In particular, heightened surveillance is needed over developments in the real estate and commodity markets. Equally important is a greater understanding of the inter-relationships between the financial and the real sector, including the potential for second round effects that are transmitted across sectors of the financial system and the economy. 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. This is especially important in crisis situations, given the serious ramifications of a delayed or ineffective response to cross-border contagion. Robust institutional arrangements are therefore vital to improve the efficiency of the supervisory processes and to allow for the early detection and management of cross-border transmission of risks arising from group-wide activities. Another key area is the evolution of the legal framework for Islamic finance. This is to provide greater certainty and to build public confidence in the system as a whole. This necessitates a legal framework that enforces end-to-end Shariah compliance in the Islamic financial services industry – through provisions and mechanisms that unambiguously define the conduct and governance of Islamic financial institutions.