Malaysia has adopted a hybrid approach towards governance reform that includes legal reform, self-regulation as well as measures to encourage market-based regulation. The approach balances between prudential regulation, market discipline and shareholders surveillance. Malaysia has proceeded on the basis that there are aspects of corporate governance where statutory regulation is effective and necessary and in others where self-regulation is more appropriate. Building the necessary legal and institutional framework to support the development of good corporate governance practices within the capital and financial markets is therefore an important part of the process. Among the various measures initiated includes the law that provides the statutory framework to protect the interest of the depositors, customers and shareholders as well as the prudential framework to promote financial stability. This includes the legal provisions prescribing the maximum permissible shareholding limit to avoid concentration of ownership. There is also a restriction on extension of credit to related parties to avoid conflict of interest, as well as a limit on the lending to single customer. Other measures include the issuance of specific guidelines on the role and responsibilities of directors and the creation of various board committees. Greater emphasis is also accorded to the role of independent directors, minimum qualifications of such directors and their compensation to ensure sufficient independence to act in the best interest of the institution. In the area of Shariah governance, guidelines have been issued on the governance structure of the Shariah Committee in the Islamic financial institutions.

Strengthening the robustness of the corporate governance framework and practices has become even more important in today's environment of greater uncertainty and heightened risks. Indeed, it is timely that efforts are focused to strengthen the corporate governance in Islamic financial institutions given the wider range of contracts entered into by the Islamic financial institutions and their customers that inherent in Islamic finance. In particular, the efforts should include the formation of an appropriate governance structure of the institution and the requirement for full disclosure. My remarks today will focus on five key areas important for securing an enhanced governance framework for the Islamic financial institutions that takes into account the role and responsibilities of the shareholders. My presentation will also touch on the experience and approach that Malaysia has adopted to secure a robust governance framework for the Islamic financial institutions. Firstly, the task is to ensure the design and implementation of the corporate governance strategy should not impose a regulatory burden to the business objectives and the growth potential. In designing and implementing corporate governance standards and core principles for Islamic financial institutions, the challenge is to formulate a framework that does not only take into account the unique characteristics peculiar to Islamic financial business, but that fosters innovation and competition thereby support the growth potential of the industry. Essentially, the design and strategies needs to secure the twin objectives of achieving continuous business performance and robust corporate accountability.