Whilst Islamic finance has demonstrated resilience during the recent crisis, the IFSB has moved quickly to review its existing capital standards for possible enhancements and to incorporate new liquidity measures in its ongoing work in developing liquidity standards for Islamic banking. This work is currently being addressed through the Working Groups for Capital Adequacy Standards and for Liquidity Risk Management. The overarching objective is to ensure that the salient features of Islamic finance are effectively and adequately addressed while taking into account the issues that had surfaced in the crisis in the conventional financial system. The next stage is the implementation of these standards in the different jurisdictions, which is just as important as the development of the standards itself. This is an area in which global cooperation and collaborative action is critical so as to ensure the consistent implementation of the regulatory framework. The full adoption of IFSB standards will eliminate the opportunity for regulatory arbitrage, in particular, regulatory arbitrage due to cross-sectoral differences, cross-border differences and the differences between conventional and Islamic finance. The more consistent implementation of these standards will also ensure greater certainty in the regulatory treatment of Islamic financial transactions, thereby enabling comparability among institutions as well as surveillance by regulatory authorities. This harmonization will not only contribute towards global financial stability, but will also promote greater transparency across borders. The application and enforcement of the international prudential standards promulgated by the IFSB will contribute towards achieving these objectives.

Given the global dimension of these building blocks, international cooperation and collaboration is significantly vital to advance these important agendas. Regulatory harmonization Commanding the highest level of international cooperation is particularly vital in the implementation of common prudential standards to safeguard the stability of the Islamic financial system. This will contribute towards the harmonization of the regulatory and supervisory framework in Islamic financial systems across borders. Of importance is advancing the international standards and best practices that takes into account the distinct characteristics of Islamic finance. Such prudential regulation that considers the unique mix of risks associated with Shariah-compliant financial business would enhance the effectiveness of the regulatory outcomes intended for Islamic finance. Much progress has already been made by the IFSB in promulgating an extensive set of prudential standards for the Islamic financial services industry since its establishment in 2002. The IFSB has already introduced standards for capital adequacy, risk management,  2  BIS central bankers’ speeches  corporate governance and Shariah governance. This important work has been significant in promoting international uniformity of regulatory frameworks and international best practices for the Islamic financial system in different jurisdictions. Its significant progress has benefited from the strong international cooperation and collective support from its member countries and global institutions. Indeed, as an evolving global industry with varying stages of development across borders and various business structures and operating models used in the different markets, this close engagement has also allowed for the attainment of balanced views.