Through our involvement in various international forums, such as the bi-monthly BIS Governor Meetings, as well as Standard Implementation Group of BCBS, of which we are a member, the BOT has proposed that developing countries be invited to participate in the development process of these new standards right at the beginning rather than be informed of them at the very end. Moreover, the BOT has also voiced our concern over the use of a simple leverage ratio, which does not take into account inherent risk because this would tend to penalize banks in developing countries since they generally hold less risky assets compared to developed countries. Recently, the BOT was invited to take part in the newly created Basel Consultative Group (BCG), which will meet for the first time during 28 to 29 October this year. The BCG’s main agenda is to be a discussion platform for ongoing Basel Committee on Banking Supervision’s prudential standards and their implementation issues, such as those mentioned earlier. In this regard, our stance on the implementation of any new regulatory and supervisory change includes the following points. First, regarding microprudential policy framework, the BOT already has the process to enhance understanding and adjustment of banks for the implementation of related standards, for example, through hearings. Macroprudential policy framework is a more challenging area, particularly in terms of data limitations and policy calibration. Despite this challenge, the BOT remains committed to maintain overall stability of the financial system.

In addition to these developments, regulatory and legal reforms are also being undertaken in a number of jurisdictions to accommodate the unique characteristics of Islamic financial transactions to support the progressive development of Islamic finance. Following these institutional enhancements, the significant growth of Islamic financial markets and the development of the supporting financial infrastructure, the international financial architecture for Islamic finance has been strengthened considerably. Established international financial centers have now included the development of Islamic finance as part of their agenda. Also emerging on the horizon are new Islamic financial centers in which innovative and competitive Islamic financial services industry is evolving. With the supporting comprehensive Islamic financial infrastructure in place in Malaysia and the diversity of Islamic financial players following the recent increased liberalization in the Islamic finance sector, Malaysia is positioning itself as an international Islamic financial center. Key Challenges Ahead While Islamic finance has made significant strides, there are key challenges that needs to be addressed for Islamic finance to sustain its development in the global financial system. My remarks will focus on four of these challenges. The development of robust Islamic financial system at the national level Firstly, there is the challenge to develop a robust Islamic financial system at the national level. The level of development of Islamic finance across jurisdictions varies significantly. While in some, Islamic finance is at an advanced stage of development, in others, more meaningful progress is yet to be made.