At the centre of the reforms have been the Basel III reform package, principles for riskaligned compensation structures and improving the consistency of regulatory regimes across the different parts of the financial system, including the shadow banking institutions. Significant work is also progressing to strengthen resolution regimes and financial safety nets, particularly in a cross-border context. Given the specificities of Islamic financial institutions, the implementation of these reforms require a careful examination of the different implications that they present for individual institutions and the system as a whole. We are now witnessing wave of the internationalisation of Islamic finance as the role of Islamic finance has expanded to become significantly more globalised. This has resulted in domestic Islamic financial systems to become more inter connected and with the consequence that integrated, risks are more rapidly transmitted across the financial system. Building on the foundations that have been put in place with the adoption of prudential standards introduced by the Islamic Financial Services Board (IFSB) in the key areas of capital adequacy, risk management, corporate governance and Shariah governance, the regulatory, supervisory and legal frameworks will need to reflect the growing cross-border dimensions of Islamic finance and its increased connectivity. Of priority will be efforts to strengthen the cross-border regulatory and supervisory cooperation arrangements in the relevant jurisdictions and to strengthen further the international financial infrastructure for Islamic finance. As we advance forward, this will be of great importance to promote stability and confidence in the more challenging international environment.

Zeti Akhtar Aziz: Islamic finance – the new regulatory challenge Introductory remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the book launch of “Islamic finance – the new regulatory challenge, 2nd edition”, Kuala Lumpur, 22 July 2013. *  *  *  It is my pleasure to be here this afternoon to witness the launch of the second edition of “Islamic Finance: The New Regulatory Challenge”. As the Islamic financial industry transitions into a new era of growth and development in this post-crisis world, the evolving regulatory reforms that are taking place to strengthen the resilience of the financial industry has presented wide ranging challenges in the implementation of the reforms and in also ensuring a more inclusive and stainable growth. The various dimensions of these regulatory challenges and its impact on Islamic finance are captured in the publication that is being launching today. It is indeed a more challenging time for financial regulators and policymakers worldwide. Priorities for strengthening financial stability and growth are now focused on achieving global financial systems that serve the needs of the real economy. Driven by concerns to ensure that banking institutions are more robust against mutil-faceted and more complex dimensions of risks going into the future, regulatory efforts are being directed at significantly strengthening the capital and liquidity structures of banks, and ensuring that there is better alignment between risk-taking behaviours and long-term viability as well as ethical conduct.