•  More specifically, the new regulations were guided by five main objectives: i)  To increase the resilience of the banking sector (solvency and liquidity ratios);  ii)  To prevent excessive leverage and maturity transformation (leverage and net stable funding ratios);  iii)  To reduce market risk and increase market transparency (reform of over-thecounter derivatives, Basel 2.5 on market risk);  iv)  To limit systemic risks (macroprudential rules, identification of and specific rules for systemic institutions, rules for bank resolution);  iv)  To fight “casino finance” (rules on the separation of certain speculative banking activities). •  Throughout the preparation of the new regulations, the idea was never to suffocate banks with overly restrictive rules. The regulators tried to calibrate the rules in a balanced manner, and took into account the reality of the situations these banks face – and the risk that, rather than limiting dangerous banking activities, the rules might in fact drive banks to shift them into unregulated entities. France, in particular,  2  BIS central bankers’ speeches  worked hard to make sure that the “pendulum theory” did not mean regulation was set at a level that would prevent banks from continuing to finance the economy. I’m thinking of two examples in particular: the improvement of the liquidity coverage ratio (LCR) at the start of the year and the balanced choices made by both French and German political authorities on the separation of banking activities.

A case in point is the reputational risk a financial institution that provides financing to companies involved in environmental destruction activities could face, which may eventually affect the institution’s financial sustainability. Malaysia’s experience and approach A question in mind is therefore whether Islamic finance has fully optimised on these value propositions. Allow me to share this in the context of the Malaysian Islamic financial industry. 1/3  BIS central bankers' speeches  After three decades of development, the Islamic finance industry has progressed to become an integral component of the Malaysian financial system5. Most notably, Islamic finance has played a catalytic role in financial inclusion – enabling access to formal financial services for the different segments of the society. In charting its strategic direction, in 2017, a few Islamic financial institutions began to explore value-based intermediation or VBI as a new operational model. The VBI encapsulates the vision to focus on being more impact-driven, reinforcing the overarching intent of Shariah to promote good and prevent harm. Islamic finance, moving forward, strives to be relevant to all as a financial intermediation that creates positive and sustainable values for broader stakeholders – consistent with the long-term value creation for shareholders and aligned with the national targets of sustainable development goals (SDGs). To date, 12 Islamic banking institutions have committed to integrate environmental and social considerations in their offerings, practices and cultures. In facilitating the industry in this journey, Bank Negara Malaysia collaborates with the industry to create an enabling environment for smooth and orderly transition.