Regulatory emphasis has shifted towards a more risk sensitive regulatory capital framework and the assessment of risk management systems and processes in financial institutions. Extensive investment has been made by the industry to adopt a comprehensive and robust internal risk management infrastructure. In Islamic banking, the requirement to manage risks becomes more important due to the special nature of the financial intermediation process that is guided by the Shariah. Islamic financial institutions have a multi-facet role. On the asset side, Islamic financial institutions enter into diverse modes of Islamic financial contracts, each with its own peculiar risk characteristics. Basel II, has to a certain extent, incorporated the identification of credit, market and operational risks that can be assimilated by Islamic financial institutions. However, Islamic financial institutions need to be ahead in exploring other dimensions of risks in these Islamic financial contracts. The risk management infrastructure in Islamic financial institutions must therefore be in place to identify, unbundle, measure, monitor and control all the specific risks in Islamic financial transactions and instruments to provide for their effective quantification and management. Strong risk management capabilities become more pertinent in view of the different contractual arrangements entered into by the Islamic financial institutions with the different classes of depositors. Demand deposits, under the guaranteed custody contract and investment deposits, under the Mudharabah contract, each has its own unique risk and return attributes. Islamic financial institutions must ensure that demand depositors are protected from the risks of Islamic banking business.

David Rule: Simple, transparent and comparable securitisation Speech by Mr David Rule, Executive Director for Prudential Policy of the Bank of England, at Global ABS, Barcelona, 17 June 2015. *  *  *  Thank you for inviting me to speak at Global ABS 2015. For the past couple of years the Bank of England has been working with the ECB to consider what can be done to foster the development of robust and well-functioning securitisation markets in the EU. Last year we published a joint discussion paper 1 and received helpful feedback from a wide range of commentators. One theme was support for defining the characteristics of simple, transparent and comparable securitisation – more on that in a moment. More recently, we published a joint response 2 in support of the European Commission’s consultation on securitisation and look forward to the Commission’s forthcoming legislative proposals. A key objective of the Capital Markets Union in Europe is a financial system in which stable market-based funding complements bank lending as a source of finance for the economy. Securitisation can be an important part of that stable, market-based funding, alongside other markets such as equities, bonds and private placements. Banks can use securitisation to diversify their funding and transfer risk on underlying loans. Importantly, non-banks can also finance lending through securitisation. Banks and non-banks can use securitisation to help match the maturity of their liabilities to their assets. This is particularly important in the context of housing finance.