In performing their intermediation function of channelling funds between the savers and investors, depositors need to be assured of the safety of their deposits and the efficiency in the manner in which the funds are mobilised and channelled to productive investment. Through their extensive branch network, and now through internet banking, banking institutions are able to efficiently reach an extensive customer base nationwide. As a custodian of public funds, maintaining integrity and confidence in the banking sector is vital towards ensuring the stability and soundness of our financial system. The trust of the public in banking institutions is inspired by the confidence in the safety and security of deposits, and that these funds will be professionally managed. Banking business involves risks and these risks need to be rigorously managed if public confidence in the banking system is to be secured. These risks involves credit risks, market risks, sovereign risks and foreign exchange risks, to name a few. There is therefore no room for negligence. This emphasize that the business of banking is too important to be left to self regulation. The regulatory framework put in place by Central Banks are aimed to ensure the soundness and efficiency of the system and the protection of the interest of depositors and investors. Before proceeding further, I would like to touch some aspects of the regulatory framework instituted for the Islamic banking industry in Malaysia. In Malaysia, we have embarked on the concept of dual banking where the Islamic banking system operates in parallel with the conventional banking system.

The Syariah advisory council serves as a check and balance to ensure that the management and operations of the Islamic banking institutions does not deviate from the Islamic principles in the formulation of the policies. Towards this end, Bank Negara Malaysia is currently drawing up the guidelines to strengthen further the existing Syariah advisory committees at Islamic banking institutions. Amongst others, the guidelines will outline the role and responsibilities of the Syariah advisory committee of the Islamic banking institutions with the view to ensuring that the decision-making process that require Syariah inputs have undergone the necessary thorough and rigorous process. Ladies and Gentlemen, With the establishment of the Islamic Financial Services Board (IFSB), it is envisaged that the level of transparency and quality of corporate governance of Islamic banking institutions will be further enhanced. The IFSB is expected to play a prominent role in promoting prudent, transparent and the robust development of the Islamic financial services industry through the promulgation of international prudential standards that are consistent with the Syariah principles. We are honoured that Malaysia has been chosen to be the IFSB secretariat and hope that the IFSB will achieve its noble objectives as an effective prudential standard setting body for Islamic financial institutions. Ladies and Gentlemen, While significant progress has been achieved in Islamic banking there remains much to be undertaken both by the regulators as well as the industry if the true potential is to be realised.