The increasing interest in Islamic finance is a positive development as a larger number of institutions can contribute to more rapid growth of the industry. An increasing number of jurisdictions are now taking steps to modify their legislations to cater for Islamic finance. Ireland earlier this year published its Finance Bill 2010 which introduced significant amendments that are aimed at facilitating Islamic finance. France has also taken significant steps to push through changes to their tax and legal codes. Australia, Jordan and Lebanon are all reportedly working towards reviewing their legislations to be accommodative to Islamic finance. Given the importance of developing a supportive legal system, these global moves augur well for sustainable global growth of Islamic finance. In light of this development, I would like to make some remarks on the evolving legal framework for Islamic finance. In sharing my thoughts, I will draw heavily on some of the strategies and initiatives undertaken by Malaysia. BIS Review 161/2010  1  One of the key determinants for successful development of Islamic finance in any jurisdiction is the existence of a conducive legal framework that supports the operations and growth of the industry. Given that the legal infrastructure in any jurisdiction has evolved over the centuries to cater for conventional finance, understandably, governing legislations of a country have typically required modifications to accommodate Islamic financial transactions and structures. It is therefore of no surprise that jurisdictions that are able to quickly amend their legal framework have managed to achieve significant growth in Islamic finance.

The starting point in revising laws is therefore to ensure that the governing laws allow for the conduct of Islamic finance business. A closely related goal is to consider removing elements in existing laws, including the non-regulatory laws, which may render the conduct of Islamic finance business uncompetitive or inefficient. Initial considerations would involve changes to ensure that Islamic finance is placed on a level playing field with conventional finance. The purposes and objectives of the governing laws for Islamic finance are known to be largely similar to conventional finance from the financial regulation standpoint. Notwithstanding this, an ideal approach is devising a legal framework for Islamic finance that sanctions the statutory obligations for Shariah compliance in the governing law. This approach however, may not be feasible as preference for religions concerns can be seen to be contradictory to the principles of secularism and parity of beliefs rights in certain jurisdictions. We may need alternative approaches. I will revisit and elaborate on these points in greater detail at a later part of this speech. In Malaysia, the new Central Bank of Malaysia Act 2009 explicitly codifies the duality of the Malaysian financial system which shall consist of the conventional financial system and the Islamic financial system. In this regard, Malaysia has taken the approach to enact regulatory laws that are, at least for banking and takaful (Islamic insurance) industry, separate from conventional finance as the legal foundation for the conduct of Islamic finance business.