Malaysia is honoured to host the Islamic Financial Services Board and is committed to the development of a sound. Islamic financial services industry. Ladies and Gentlemen: Islamic banking and finance is ascending to greater prominence in the global financial system and has fast extended beyond the traditional predominantly Muslim economies to major industrial economies. This growing significance is a manifestation of the viability of Islamic banking as a financial intermediation channel that supports economic growth and development of nations. While it was initially developed to fulfill the needs of the Muslims, Islamic banking and finance has now gained universal acceptance. The appreciation of its promising potential has prompted interest amongst conventional financial institutions to venture into this fast expanding market. In essence, Islamic banking and finance can expect to evolve into an increasingly important component of the global financial system. At the heart of this expansion, emerged the need for the development of the regulatory dimension to explicitly address the unique features of Islamic banking and finance. At present, Islamic financial institutions have, to a large extent, been governed by the conventional regulatory framework, reinforced by the Shari'ah framework and Islamic accounting standards. However, Islamic finance is distinct from conventional financial activities in terms of its underlying philosophy on the prohibition of interest, which in turn shapes the nature of its financial transactions, and its risk attributes. A separate regulatory framework therefore needs to be developed in view of the unique risks in Islamic financial transactions to provide for their effective assessment and management.

Ladies and Gentlemen: The Islamic Financial Services Board, IFSB will serve as an association of central banks, monetary authorities and other institutions, entrusted to develop and promulgate internationally accepted prudential regulatory standards and best practices. In advancing this mission, the Board will examine the extent to which existing international best practices need to be adapted and complemented to be consistent with Shari'ah principles. The IFSB will liaise and collaborate with other international standard setting bodies to achieve the common goal of international financial stability. In addition, the Board will also focus on the development of risk management instruments, cultivation of sound risk management practices and facilitate the implementation of robust risk control mechanisms in Islamic financial institutions through research, training and technical assistance. This would encompass the adoption of international best practices on risk management standards as well as the development of new risk management techniques in conformity with Shari'ah injunctions. Ladies and Gentlemen: The forces of globalisation, financial liberalisation, technological advancements, intensified competition and financial innovation have created new risks which are more complex and which have more profound systemic implications. Accordingly, to manage these risks, prudential regulation and supervisory oversight have become more demanding and challenging. To ensure the international financial regulators and supervisors are able to respond effectively to the changing environment, the Basel Committee has revised its Capital Accord to be more risk-focused and risk-sensitive. In this respect, the IFSB can certainly draw on this framework in designing the Islamic financial supervisory regime.