4  BIS Review 34//2005  Transparency Fifth, a very important reason why I believe Basel II will contribute to financial stability involves greater transparency. The exercise of market discipline should be considered a vital element of successful prudential policies. In particular, in order to ensure responsible and prudent behaviour by bank managers, supervisory action is not sufficient. Majority and minority shareholders, depositors and debt-holders should also have the capacity to evaluate banks and reward or penalise them according to how prudently they are managed. As mentioned earlier, Basel II, via the third pillar of the framework, provides for greater transparency. This should serve to curb excessive risk-taking in advance, and should reduce surprises that arise from opacity that can result in a shock to the financial system. Risk-based supervision Sixth, the assessment of risk has begun to play a predominant role in supervisory procedures. Banking supervision traditionally sought to ensure the solvency of banks by emphasising an accounting review of their financial and capital position. There is certainly still a role for this type of review, particularly in assessing asset quality and ensuring proper provisioning and risk concentration policies. The traditional approach is no longer sufficient, however. Today it is necessary for supervisors to place a greater emphasis on anticipating problems. It is vital to complement the traditional accounting approach with a greater emphasis on the analysis of the risks that affect banks and the management and control systems that mitigate such risks.

Zamani Abdul Ghani: Building a progressive takaful sector in the overall Islamic financial system Keynote Address by Mr Zamani Abdul Ghani, Deputy Governor of the Central Bank of Malaysia, at the 2nd Seminar on Regulation of Takaful, Langkawi, 23 February 2006. *  *  *  Bismillahirrahmanirrahim. His Excellency Dr. Bassel Hindawi Vice Chairman, Director General of the Commission Insurance Commission of Jordan Mr. Anwar Khalifa Ebrahim Al-Sadah Deputy Governor, Bahrain Monetary Agency Professor Rifaat Ahmed Abdel Karim Secretary-General, Islamic Financial Services Board Distinguished guests and participants, Assalamualaikum warahmatullahi wabarakatuh and good morning. 2. It gives me great pleasure to be here this morning to welcome you to Malaysia and to this beautiful island of Langkawi. I am also pleased to be invited by the Islamic Financial Services Board (IFSB) to address this major event that brings together those among us who share deep interest in the development of global takaful and Islamic finance. Alhamdulillah, we have among us today distinguished market players, regulators, scholars, consultants as well as participants from almost twenty (20) countries around the world. I also wish to congratulate the IFSB for its efforts in organizing, for the second consecutive year, this international seminar focusing on the regulation of takaful. Let me at the outset reiterate the importance of this Seminar as a source of collaboration for ideas, sharing of knowledge and exchange of experiences for the continuous developments and improvements of the Islamic finance industry.