Not only will this provide a deep pool of highly trained and capable employees, it will also further promote the innovation of Islamic financial products and services. In a dual financial environment, neutrality in treatment between Islamic and conventional financial products is important in order to create a level playing field. It also sets the stage for greater innovation to take place to support the development of the Islamic financial services industry going forward. With the strengthened and robust Islamic financial infrastructure firmly achieved in the first two phases of the FSMP, the Islamic financial services industry is poised to tap new growth opportunities and grow to its full potential. This will inevitably increase the breadth and depth of the Islamic financial market and, more importantly, strengthen Malaysia 's position as an attractive and dynamic international Islamic financial centre. In preparing for the pressures of liberalisation and increased competition, continuous review of the regulatory framework and their implications on the efficiency and an environment conducive for innovation is taken into consideration. The cost and benefits of regulations are carefully weighed to ensure a well-balanced regulatory framework that meets prudential objectives yet remaining relevant and adaptable to the changing environment. Premised on this, the prudential framework is evolving towards a predominantly principle-based regulatory approach. The underlying flexibility inherent in the principle-based approach would involve a regulatory framework that relies more on market discipline, where the market will be entrusted to allocate resources and risks, with greater reward for prudent practices.

With the accelerating pace of regional integration, financial institutions are presented the opportunities to broaden beyond domestic borders to capture opportunities for the regional markets. It has been more than 5 years since the Financial Sector Master Pan was launched. The strategic focus has allowed us to promptly emerge from the crisis management mode and moved full steam ahead towards developing the financial system, The initiatives undertaken have now laid a strong foundation for the development of a strong and diversified financial system. Significant progress has been achieved in building the capacity and capability of the financial sector and in putting in place the necessary financial infrastructure including the supporting legislation and the domestic financial markets. 2  BIS Review 55/2006  The financial landscape and operating environment that is envisaged in Phase 2, where domestic banking institutions would have built greater capacity and capability to compete, is also progressing as planned. The level of competition in the financial system has increased significantly, fuelled by greater expectations from customers and facilitated by a more flexible regulatory framework and increased deregulation and liberalisation. This has resulted in improvements in the delivery of financial services and more efficient pricing and risk management, all of which contribute towards raising the level of economic performance. The wide range of measures to improve efficiency and effectiveness of the financial institutions, include initiatives on improving risk management practices, further developing the human capital and building talents for the financial sector, as well as measures to elevate the level of consumer awareness.