We believe that a stable and dynamic financial system that serves the needs of the economy and the public cannot be built on regulation alone. Responsible and competent board and senior management who manage the risks of their financial institutions well are also critical. Growing interest in Islamic finance 10. The general outlook for Islamic finance remains positive despite the negative spillover from the financial crisis. As a basic tenet, Islamic finance emphasizes that financing activities should underpin real commercial activities. Due to its widening acceptance and its appeal as a means for ethical investment, the industry is expected to continue growing at twice the pace of its conventional counterpart. As such, surveys estimate that the industry will soon cross the $ trillion mark in total assets. 2  BIS Review 84/2010  11. But similar to conventional banks, Islamic financial institutions have been impacted by the economic slowdown and resulting weaker asset prices. Some financial institutions have been badly affected by the over-concentration in illiquid assets and overlyoptimistic business plans. The Islamic industry therefore needs to take heed of the lessons learnt from the current crisis and pay greater attention to issues related to capital adequacy, market liquidity and risk management. Overcoming these challenges will require strong cooperation within the industry and across different jurisdictions. MAS, as a full and Council member of the Islamic Financial Services Board (IFSB) since 2005, will continue to advocate and support multi-national initiatives that would bring about such improvements. Singapore as a global city for business and finance 12.

As we have seen in recent times, financial centres are important nodes in ensuring that the world economy continues to function well. They need to be responsive to the dynamic market place in order to perform their critical roles to sustain growth by ensuring that capital is channeled to the most productive uses. 13. Singapore as a vibrant and cosmopolitan Global City is well-positioned for businesses to connect to Asia and international markets. Over time, we have established the necessary infrastructure, global connectivity and pool of expertise with the requisite knowledge, understanding and experience of local conditions in Asia that can add value to companies entering the region. 14. As a financial centre offering a full suite of financial services, Singapore stands ready to play a wider developmental role in promoting Islamic finance in response to rising regional demand for Shariah-compliant products and services. MAS has worked closely with the industry and other government agencies to ensure a levelplaying field between Islamic and conventional finance such that Islamic finance is not disadvantaged for tax and regulatory purposes where the economic substance and risks are similar. 15. Many market players are already leveraging on Singapore’s strengths and capabilities to raise capital, create infrastructure and real estate funds and conduct wealth and asset management activities. For instance, the Islamic Development Bank and City Development Ltd have tapped our capital markets to raise Shariah-compliant Singaporedollar funding.