The second concerns strengthening corporate governance. Banking supervision cannot and should not replace company directors and senior managers in the performance of their functions or the discharging of their responsibilities. Naturally, then, the contribution of bank directors and senior managers is essential if sounder, more stable and more efficient systems are to be attained. Achieving appropriate corporate governance standards contributes to corporate health, increases market confidence and promotes efficiency in the economy in general. Legislators, supervisors and, above all, entities themselves should promote the sound functioning of companies through the following key aspects: management transparency; the reliability and integrity of accounting information; the protection of shareholders; and the appropriate treatment of conflicts of interest. Also vital are the accountability of boards of directors and the suitability of their composition and procedural rules; guarantees that key decisions are adopted by the appropriate collegiate bodies and then duly recorded and conveyed to the market with sufficient transparency; and the setting up of audit, remuneration or appointment committees with clear objectives so as to ensure their effectiveness. To be effective, the adoption of any code in this area should be supported by appropriate structures and procedures. It will also require substantial participation and commitment by the company's directors and managers. Specifically, I should like to stress the importance for good corporate  8  BIS Review 38/2002  governance of an audit committee that is suitably composed and committed and on which nonexecutive directors form the majority.

More recently, there has been a growing diversity in the range of products and services being offered and in the markets that have been developed. The sukuk market, that is the Islamic bond market denominated in international currencies, has registered a remarkable growth, having doubling in size to amount to USD28 billion compared to a year ago. Including sukuks denominated in domestic currencies, the size of the market is now about USD82 billion. This market is expected to continue to expand significantly given the massive financing requirements for infrastructure investment and other private sector investment by countries that have shown interest in Islamic funding. There has also been significant innovation in Islamic financial products. This has been especially evident in the sukuk products. Following the Malaysian Government issuance of the world's first global sovereign sukuk in 2002, there has been several other sovereign  BIS Review 121/2007  1  sukuks issued by other countries. This development has also encouraged the issuance of international corporate sukuks by multinational and domestic corporations. Innovative instruments that have been developed include the landmark issuance in 2006 of the exchangeable sukuk by Khazanah Nasional, the Malaysian sovereign wealth management entity. In this arrangement, the sukuk can be exchanged for other shares held by Khazanah. In the same year, a convertible sukuk, in which the sukuk can be converted to the issuer's own shares upon initial public offering, was issued by a Middle Eastern-based corporation.