A Framework for All Seasons? Speech given by Mark Carney Governor of the Bank of England  Bank of England Research Workshop on The Future of Inflation Targeting 9 January 2020  I am grateful to Clare Macallan for her assistance in drafting these remarks and to Nishat Anjum and Alexis Tessier for background research and analysis. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Introduction Following a chequered history of high and volatile inflation in the post-war era, the UK finally found monetary success as an early adopter of inflation targeting in 1992. The UK’s current regime, launched in 1997, delegated operational independence for setting monetary policy to the Bank of England and included many institutional innovations that have stood the test of time – most notably a Monetary Policy Committee with a mix of internal and external members; transparent, independent voting; and a clear accountability framework. Since operational independence for inflation targeting was delegated to the MPC, there have been a raft of improvements, both large and small. Transparency has steadily increased with initiatives ranging from publishing detailed assumptions underlying forecasts ex ante to assessing forecast accuracy ex post as well as the simultaneous release of Monetary Policy Summaries, Minutes, and Inflation Reports. More recently, the MPC has introduced layered communications, with simpler, more accessible language and graphics to reach the broadest possible audience, and we have launched the Monetary Policy Report in order to give greater prominence to the most pressing issues shaping each monetary policy decision.

The Islamic financial system that has developed in Malaysia over the last two decades has emerged as a comprehensive Islamic financial system that operates in parallel with, and is able to compete on an even keel with the more entrenched conventional financial system. The development of Islamic finance as an important niche activity in Malaysia’s International Offshore Financial Centre in Labuan also complements the development of the domestic Islamic financial market. To ensure the sound and stable development of the Islamic financial industry, it needs to be supported by a strong regulatory and supervisory framework. This is to ensure that the operations of the Islamic financial institutions are sound and not a source of vulnerability to the banking system. To a large extent, it has been governed by a regulatory framework that has been reinforced by the Shariah framework and the Islamic accounting standards. The challenges facing the Islamic financial industry can be expected to be much more complex and demanding. This is because the regulatory framework in the Islamic financial industry needs to address the unique characteristics and attributes associated with Islamic banking operations and Islamic financial instruments. The complexities of the respective risks in the Islamic financial instruments need to be fully explored and quantified to provide for their effective assessment and management. With the advent of Basel II that advocates a higher degree of risk-focused regulatory approach would require the Islamic financial institutions to identify and “unbundle” the risks inherent in Islamic financial instruments.