The Malaysia International Islamic Financial Centre, or MIFC, initiative, launched in August 2006, has taken Malaysia's liberalisation strategies to a new level with the aim of positioning Malaysia strategically in this new growth area. Islamic banking institutions are allowed to undertake a broader array of Islamic financial activities that include commercial banking, consumer banking, investment banking as well as international currency business under the MIFC initiative. Financial institutions need to consider their own competitive positioning in this area and to have the appropriate strategies to participate in this dynamic growth sector. Finally, the regulatory and supervisory paradigm will also continue to evolve. Indeed, we have over the recent decade witnessed significant global shifts in the approaches to regulation and supervision across many countries. These have ranged from radical policy responses in some countries that led to the introduction of costly regulatory systems to address the problems have emerged, to bold deregulatory measures pursued in other countries, especially during times of exuberance and strong market conditions. A convergence towards the middle ground between these two extremes now seems to be emerging. Two dimensions of regulatory change will be relevant to the context of the new environment. First, the emphasis on creating a strong risk management culture that is fundamental to sound banking operations will become significantly more pronounced. T he transition to Basel II and the implementation of the risk-based supervisory regime are important elements of this change.

Accompanying these changes has been the prevalence of abundant liquidity in the global financial markets, resulting in an intensified search for higher yields. These trends are encouraging flows into the capital markets of emerging economies, presenting new opportunities for wholesale banking and capital market related financial services. These flows, however, also pose potential risks of reversals in financial market conditions. This increases the need to ensure that we have the capacity to absorb or adjust to changing financial flows. A second significant trend shaping the future financial landscape is the intensification of regional economic and financial integration. Economic integration through trade is already well-advanced in Asia, with the share of intra-regional trade already more than half of the total trade in Asia . More recently, however, greater financial integration at the regional level has been an important development, bringing complementary and mutually-reinforcing benefits to the economies in the region. Intra-regional investments among the Asian economies have increased with an accompanying rise in cross-border financing activities. There has already been an increase in cross-border mergers and acquisition activity among Asian financial institutions in order to reap emerging opportunities. The transformation in the financial landscape in the current environment has not been confined to the Asian region but has also involved growing ties with other emerging regions. Of significance is the rising trend of trade and financial linkages between Asia and the Middle East and other parts of the world. Malaysian banks now have the capacity to take advantage of these trends.