The overarching requirement for an Islamic financial institution is to ensure that its objectives and operations are in accordance with Shariah. In Malaysia, our experience suggests that mandating this requirement in the laws governing Islamic finance is fundamental not only in the context of defining the business scope of an Islamic financial institution, but also in preserving the sanctity of Shariah in Islamic finance. This legal mandate is also crucial for the Bank to take supervisory and regulatory remedy against an Islamic financial institution, which may include revocation of licence, in cases,  2  BIS Review 161/2010  where a violation by the institution poses reputational risk that might cause an erosion of confidence and could threaten the systemic stability of the Islamic financial system. The integrity and credibility of Shariah governance framework in Malaysia is also fundamentally supported by the role of the Bank’s Shariah Advisory Council (SAC), a centralized referral body for Islamic finance community, which is statutorily positioned as the highest authority in the determination of Shariah matters relating to Islamic finance. In preserving the sanctity of the Shariah, the SAC itself ensures the robustness of its rulings through a rigorous process before arriving at a decision. Another essential element in developing an effective legal infrastructure is the role of an adjudication system. A supportive adjudication system in the context of Islamic finance is one which can authoritatively enforce the principles of Shariah in dispute settlements involving Islamic financial transactions.

As Islamic financial activities are increasingly crossing national boundaries, it is critical for more such dialogues to take place at an international level, in order to gain wider perspectives that can contribute to the development of a legal framework for Islamic finance that is internationally facilitative. Islamic finance today has become a major industry worldwide with over 300 institutions and an estimated asset size of more than USD1 trillion. Its continuing advances in the international financial landscape have recently been accompanied by several major efforts aimed at strengthening its international financial infrastructure. A key structural enhancement achieved recently was the establishment of the Islamic Financial Services Forum (IFSF) that serves as a platform for cross-border engagement among regulators to achieve financial stability in the Islamic financial system. Another important development achieved more recently was the establishment of the International Islamic Liquidity Management Corporation (IILM) as a mechanism for more efficient management of liquidity across borders for Islamic financial institutions. These continuing efforts to strengthen the foundations of Islamic finance have served to ensure its preparedness in meeting the challenges on the path of internationalisation. As we open a new chapter of global growth and development with the unfolding of a new decade, Islamic finance is in a position of strength to play a greater role in the global financial landscape. Today, many jurisdictions are interested in Islamic finance and have taken initiatives to develop the industry.