Zeti Akhtar Aziz: Corporate governance and aspects of the regulatory framework instituted in Malaysia Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2nd Seminar for Central Banks and Monetary Agencies on AAOIFI’s Accounting Standards, Kuala Lumpur, 29 May 2002. *  *  *  Assalamu`alaikum Warahmatullahi Wabarakatuh and Good Morning Malaysia is indeed honoured to host this annual Seminar organised by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for Central Banks and Monetary Agencies on AAOIFI’s Accounting Standards for Islamic financial institutions. Since its establishment in 1990, AAOIFI has made a significant contribution in formulating and issuing accounting and auditing standards for Islamic financial institutions. The standards issued by AAOIFI have contributed towards the improved quality of financial statements and reporting methodology of Islamic financial institutions. AAOIFI has also issued standards on the role of Syariah committees as well as the code of ethics that should govern the accountants and auditors of Islamic financial institutions. Undoubtedly, efforts by AAOIFI have accelerated the pace of transparency and corporate governance of Islamic financial institutions globally. Ladies and Gentlemen, A well functioning and efficient banking system is vital for achieving robust economic performance. Within the context of the economy, the banking institutions perform the important function of mobilising funds that are channelled to productive investments thereby generating economic activity.

Bank Negara Malaysia has undertaken a number of initiatives in promoting transparency and good banking practices in Islamic banking  2  BIS Review 35/2002  institutions. To achieve these objectives, Bank Negara Malaysia has adopted an all-encompassing approach which is focussed on strengthening the institutional capacity of the Islamic banking institutions, broadening the range of financial products and services and deepening the Islamic financial markets by intensifying research and development efforts as well as creating awareness in addition to strengthening the regulatory framework for Islamic banking. One aspect that has been carried out by Bank Negara is the introduction of a structured framework in the determination of the rate of return for Islamic banking operations. Previously, there were various modes of framework in the disclosure of the rate of return used by the Islamic banking institutions and it has, to a certain extent, made it difficult to assess the performance of the Islamic banking industry. It also created distortions in the rate of return as the spreads can vary significantly among Islamic banking institutions. The new framework addresses the issue of uniformity as banks are required to observe a single framework, thereby reducing the potential for distortions in the rate of return, and generating a more equitable distribution of income, as well as increasing the level of transparency. On the part of the regulator, it has provided us with better means of assessing the efficiency of Islamic banking institutions as well as their profitability, prudent management and fairness.