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.

This approach has proven to be successful and critical in instilling public confidence in the Shariah integrity of the industry. Whilst enacting a separate governing law avoids the trap of confining the scope and operation of Islamic finance within the mould of conventional finance, this approach has proven in Malaysia to be the most efficient way possible to regulate Islamic finance. Recently, Malaysia has undertaken the initiative to establish a Law Harmonisation Committee with the main objectives to review existing Malaysian laws which are applicable to Islamic financial transactions and to propose necessary amendments to give legal recognition to Islamic financial transactions under the law. The mandate of the Committee extends beyond those that are regulatory in nature to include all laws relevant to execute the whole chain of Islamic finance practices. The desired outcome of the Committee’s work is the creation of laws that are facilitative, contemporary, and easily enforceable. Another objective is to provide facilitative legal framework for the Islamic finance industry and develop Malaysian laws as the law of choice for international Islamic financial transactions. This initiative is consistent with our continuous effort to foster an efficient, innovative and competitive Islamic financial system, given the more globalised and liberal operating environment within which Islamic finance will operate. The consideration for evolving the legal framework in Islamic finance would not be complete without extending due regard to the robustness of Shariah governance framework. This is inevitable given that Islamic finance has its roots in Shariah.