The broad strategies that have been adopted as outlined in the Financial Sector Master Plan and the actions and initiatives taken leading to the rapid development and growth of the domestic Islamic banking industry have all contributed to the achievements we have realised today. Indeed, the recent two years have seen the Islamic financial landscape being significantly redefined the establishment of Islamic subsidiaries, the issue of new licences to foreign players, and the initiatives of our domestic institutions to venture abroad. These developments have increased the potential for international integration of our Islamic financial system. The liberalisation of our domestic bond market to allow multilateral and multinational corporations to raise Ringgit denominated instruments in our market has also expanded the volume of Islamic instruments in our financial markets. More recently, an Islamic equity index was introduced increasing further the potential for the deepening of the domestic capital market. In the area of Shariah, Bank Negara Malaysia has introduced the Shariah governance framework in April this year as one of the initiatives to strengthen the role and involvement of the Shariah scholars in the development of Islamic finance. Today, a larger pool of Shariah scholars has been created to better serve the needs of the industry and the plan is to further develop them to emerge as prominent Scholars who can serve both domestic and international Islamic financial communities. Recently, Bank Negara Malaysia also organized a closed-door Shariah Scholars Dialogue attended by fifty prominent local and foreign scholars.

7  BIS Review 75/2000  At the same time, the respondents raised a number of important concerns and questions that the Committee is reviewing and considering carefully. The comments offered by emerging market and other “non-G10” countries have figured prominently into the Committee’s review of its initial proposal, and Claes Norgren, who is chairing the next session, will provide an update on the Committee’s thinking regarding these points. I’d like to take a few minutes to update you on our efforts, focusing on a few topics of special interest. Given the progress we have already made, it is clear to me that the Committee is well positioned to continue its momentum and to release a revised Consultative Paper early next year. Internal ratings-based approach The centerpiece of the new Accord is likely to be the internal ratings-based approach to credit risk. We envision that the internal ratings method will be applicable to those institutions that have in place strong internal rating systems accompanied by robust internal controls. Naturally, our new standards will also encompass guidance on supervisory oversight and provide for ample disclosure. The Committee is looking to establish standards that are rigorous and yet permit institutions willing to make the necessary investments to use the approach. I think that it is fair to say that the Committee now expects that many sophisticated institutions will seek to use the internal ratings-based approach. How will an internal ratings-based approach work? Simply described, there are three components to the internal ratings-based approach being developed by the Committee.