Not only will this provide a deep pool of highly trained and capable employees, it will also further promote the innovation of Islamic financial products and services. In a dual financial environment, neutrality in treatment between Islamic and conventional financial products is important in order to create a level playing field. It also sets the stage for greater innovation to take place to support the development of the Islamic financial services industry going forward. With the strengthened and robust Islamic financial infrastructure firmly achieved in the first two phases of the FSMP, the Islamic financial services industry is poised to tap new growth opportunities and grow to its full potential. This will inevitably increase the breadth and depth of the Islamic financial market and, more importantly, strengthen Malaysia 's position as an attractive and dynamic international Islamic financial centre. In preparing for the pressures of liberalisation and increased competition, continuous review of the regulatory framework and their implications on the efficiency and an environment conducive for innovation is taken into consideration. The cost and benefits of regulations are carefully weighed to ensure a well-balanced regulatory framework that meets prudential objectives yet remaining relevant and adaptable to the changing environment. Premised on this, the prudential framework is evolving towards a predominantly principle-based regulatory approach. The underlying flexibility inherent in the principle-based approach would involve a regulatory framework that relies more on market discipline, where the market will be entrusted to allocate resources and risks, with greater reward for prudent practices.

The notion that stablecoin issuers might invest in crypto-assets could further concentrate holdings and contradict the low-risk requirements for stablecoin reserves. 22. Graf von Luckner, C., Reinhart, C.M. and Rogoff, K. (2023), “Decrypting new age international capital flows”, Journal of Monetary Economics, 1 June. 23. Although it represents only a small part of the crypto-asset market, the stablecoin Tether accounts for close to half of all trading on crypto-asset trading platforms. See the section entitled “Stablecoins’ role within the crypto-asset ecosystem” in Adachi, M. et al. (2022), “Stablecoins’ role in crypto and beyond: functions, risks and policy”, Macroprudential Bulletin, Issue 18, ECB. 24. See the May 2023 report by the ESRB Task Force on Crypto-Assets and Decentralised Finance entitled “Crypto-assets and decentralised finance”. 25. A decentralised finance ecosystem is built around crypto lending that is collateralised by other cryptoassets, using smart contracts to implement margin calls. The failure of FTX had a large impact on the price of crypto-assets serving as collateral for crypto lending. This triggered cascading liquidations by crypto lenders because of the decrease in the value of the collateral. 26. See US Securities and Exchange Commission (2023), SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao, 5 June. 27. In particular, Mastercard, PayPal and Visa continue building capabilities and strategic partnerships to support crypto-assets (as well as stablecoins). 28. See, for example, JP Morgan’s Onyx Coin Systems Product Team, Fidelity’s Fidelity Crypto℠ account and Citi’s collaboration with METACO to develop and pilot digital asset custody capabilities. 29.