These two transformations present banks with a twofold challenge: on the one hand, they are exposed to and must protect themselves against the intrinsic risks associated with these developments; on the other, they have to act, because they have a role to play in these transitions, particularly on the financing side, with government backing. 1. The banking sector and the transition to a digital future and a sustainable economy Let us begin by diagnosing the situation. The banking sector is currently facing the twin challenges represented by the digital and green transition. These have the potential to weaken banks but also the wider financial system, and could ultimately impact the real economy. 1.1 Vulnerabilities in relation to the digital transition [SLIDE 2]  From blockchain and artificial intelligence to electronic payments, the cloud and big data, the growing digitalisation of banking and finance represents a multi-faceted evolution that is changing how banking has traditionally been done. We can pick out three broad shifts that characterise banking’s digital transformation and that are impacting the industry’s business model. First, customers have new expectations in terms of digital services. I am thinking here in particular of greater accessibility to tools to manage accounts remotely and obtain remote banking services, faster – even instant – payments, and more flexible customer relations. As the chart shows, more and more Europeans are using the internet for online banking, in a clear sign of how the sector is going digital [SLIDE 2].Customers also have new product needs.

In 2004, we issued three new licences to foreign Islamic financial institutions. In 2005, Islamic windows of the conventional banks were encouraged to be transformed into Islamic subsidiaries that allowed foreign equity participation of up to 49%. The foreign exchange administration rules were also liberalised to allow foreign corporations and agencies to issue ringgit sukuk in Malaysia. In 2006, foreign tie-ups were encouraged – in the four new licences for takaful business that were issued. Following these developments, the MIFC was launched in 2006 to develop Malaysia as an international hub for Islamic finance. Under this initiative, new international Islamic banking and takaful players could be established in Malaysia to conduct business in foreign currency. In 2007, foreign entities were permitted to issue non-ringgit sukuk from the Malaysian market. Foreign entities could also operate Islamic fund management activities here. Early this year, the announcement was made that up to two mega Islamic banking licences with up to 100% foreign ownership would be issued to conduct international business. These initiatives cumulatively have internationalised our Islamic financial system in terms of the presence of foreign players and in terms of participation in our financial system. The Commodity Murabahah House, or the CMH, that is being established today will be an important platform that will further enhance global interlinkages in the international Islamic financial system. The CMH is designed to be a multi-currency and multi-commodity exchange-traded platform to facilitate the trading and settlement of commodity which acts as the underlying transaction for liquidity management between Islamic financial centres.