Today, the applications of Shariah precepts differ somewhat in certain areas. It will eventually be desirable to have some standardisation to enhance consistency and to remove one source of regulatory risk. However, our goal should be to achieve a gradual harmonisation of standards and approaches to regulation, rather than immediate convergence. Even in conventional finance, regulatory approaches and standards differ across different jurisdictions. A flexible, riskbased approach will also allow continued innovation to take place, while ensuring the resultant risks are appropriately managed. Second, we need to develop a wider range of tools to detect and mitigate risks. In conventional finance, work is underway in reviewing shortcomings in capital adequacy and liquidity management in the Basel II framework, as well as the provision of clearing and settlement infrastructure for derivatives. For Islamic Finance, we need to continue to develop instruments that help to mitigate risks. Bahrain’s initiative in developing the Liquidity Management Centre 7 is an excellent example of such an effort. In this regard, I am pleased to announce that the Monetary Authority of Singapore is now in the final stages of setting up a sukuk issuance facility. I had announced, at this May's Islamic  4  MoneySENSE is a national financial education program in Singapore covering three tiers of financial literacy – basic money management; financial planning; and investment know-how. Details on MoneySENSE are available at www.moneysense.gov.sg. 5  Murabaha-based asset financing refers to mark-up asset financing, commonly used in home financing and car financing.

As a regulator, MAS looks at both the micro-prudential aspects, looking at the safety and soundness of individual financial institutions, as well as macro-prudential aspects, looking to see if system-wide risks have been built up in the aggregate. In doing this, we adopt a risk-based approach towards supervision and regulation, in order to promote sustainable development of the sector. For example, we set appropriate limits and capital charges to address the credit, market and other risks. The standards of governance and risk management are set at levels commensurate with the activities and the risks being taken. Sometimes we are accused of being overly conservative, but this prudence has served us well. In all instances, we seek to find the right balance between “principles-based” and “rulesbased” regulation; to avoid being over-prescriptive in rule-making or being over-reliant on market discipline alone to curb excessive risk-taking. Similarly, market conduct measures focus on upholding principles of fairness and transparency, for instance, through requirements on disclosure to investors and a fair-dealing sales process. The second leg of the tripartite approach is to put the primary responsibility for sound risk management and oversight of each institution on the board and senior management, which must set the right tone and culture. The third leg is to promote greater awareness among  BIS Review 147/2008  3  investors of their financial needs, encourage financial planning and promote deeper understanding of the risks and returns of different products, through educational programmes such as MoneySENSE.