In documenting financial transactions based on specific Shariah principles that underlie a financial product, the legal documentation reflects the tenets of Shariah and that it is in full compliance with the laws and regulations governing the financial transactions. Varying interpretations of Shariah in particular between countries adds to the complexity when cross-border transactions are involved. From a domestic perspective, more jurisdictions are considering a central Shariah Council as the ultimate decision making body on Shariah matters. Across jurisdictions, there has been greater engagement thus bringing about increased convergence. Mutual recognition of the interpretation of Shariah principles across countries will contribute to the sustained growth of Islamic finance. To promote consistent application of Islamic financial contracts in Malaysia, Bank Negara Malaysia has issued "Shariah Parameters" aimed at promulgating a standard point of reference on Shariah for Islamic finance practitioners. The Shariah Parameters outline the main Shariah requirements in the contracts and provides examples, methods and models for practical application of such contracts. The first Shariah Parameter on Murabahah that was recently issued aimed to promote consistent interpretation and application of Shariah views and opinions on Murabahah contracts. In providing legal services, the industry has an important role of bridging the Shariah parameter with the legal parameters of the Islamic financial contracts. This is in particular important in preparing the legal documentation of Islamic financial transactions so as to avoid ambiguity, inconsistency and to avoid the risk that the legal document be considered void by a court of law on the grounds of contravention with Shariah.

We believe that countries should adopt the options and approaches that are most appropriate for the state of their markets, their banking systems, and their supervisory structures. Basel II is not a “one size fits all” framework. Supervisors can adopt the framework on an evolutionary basis and use elements of national discretion to adapt it to their needs. For any country that is considering adopting Basel II but may not yet be ready, I like to suggest a three-stage approach towards building a foundation for the new framework: (1) strengthening the supervisory infrastructure; (2) introducing or reinforcing the three pillars; and then (3) making the transition from the 1988 Accord to Basel II. The first stage is strengthening the supervisory infrastructure. Basel II is not intended simply to ensure compliance with a new set of capital rules. Rather, it is intended to enhance the quality of risk management and supervision. One of the things that I strongly encourage for all countries is a review of implementation of the Basel Committee’s Core Principles for Effective Banking Supervision. These principles are key to laying a successful supervisory foundation. Likewise, sound accounting and provisioning standards are critical to ensuring that the capital ratios, however calculated, meaningfully reflect the bank’s ability to absorb losses. The second stage, then, is to consider how the second and third pillars of the new framework can be implemented. Supervisors do not need to wait for the formal adoption of Basel II to start introducing or using the principles of the three pillars.