jessica chew cheng lian : financial advisers the future – rise of the new wave keynote address by ms jessica chew cheng lian, assistant governor of the central bank of malaysia, at the 2nd annual conference of the association of financial advisers “ financial advisers the future – rise of the new wave ”, kuala lumpur, 31 october 2013. * * * it is my great pleasure to be here this morning at the 2nd annual conference of the association of financial advisers ( afa ). this year would be the eighth year that financial advisers have been a part of the financial landscape in malaysia. as the industry looks to the future, i think it is useful to also look back to the motivations for developing financial advisers in malaysia. fundamentally, the objective was to improve the quality of advice on insurance solutions that was being provided to consumers. before financial advisers, such advice was mainly only available in this country from tied agents and this system had certain limitations in terms of incentive structures and the breadth of products that the agent could draw on to advise consumers. a second objective, and perhaps one that has not been emphasized enough, is the expectation that financial advisers would be able to help individuals and households with a broader financial outlook. this means helping individuals and households understand how insurance fits within their broader financial management strategies to grow their savings, manage risk and meet specific financial goals. growth potential and opportunities over the last three years, the financial advisory industry saw total premiums transacted increase by an average annual growth of 21 %. while this is from a low base, the industry is on a sustained growth trajectory, which suggests that financial advisers are adding value and successfully distinguishing themselves from alternative channels for the distribution of insurance offerings. we are pleased to see a further three new financial advisers added to the industry this year. the industry has only begun to scrape the surface in harnessing the potential that exists for financial advisers to make a substantial contribution in helping malaysian households improve their financial management and prepare for income shocks. this potential is striking. every year, more than two million life and family takaful policies are sold, 69 % of this by tied agents. more than 40 % of the malaysian population still do not have any form of insurance, and a large proportion of those who do are likely to be significantly under - insured. this is supported by a recent study commissioned by bank negara malaysia which found that 79 % of more than 1, 000 respondents surveyed did not have enough financial buffers to sustain living expenses beyond 3

development of islamic banking has transitioned through four distinct phases. the first phase involved the establishment of islamic financial institutions. in the second phase, conventional banks with the appropriate firewalls in place were permitted to offer islamic financial products and services. as this window operations achieved a critical mass, the option to transform these operations into islamic subsidiaries represents the third phase of development. and finally as capacities were enhanced, liberalisation allowed for the international integration of our domestic islamic banking system in the fourth phase of the development. the first phase of development of islamic finance in malaysia started in 1969 with the establishment of an islamic savings institution known as the pilgrim fund board, or tabung haji, as the first islamic financial institution in malaysia. its objective is to mobilise savings of muslims intending to perform the pilgrimage and to channel the funds to permissible investments according to the shariah principles. as awareness of islamic finance increased, a full - fledged islamic bank was established in 1983 when bank islam, the first islamic bank was established under the islamic banking act. the government investment act was also enacted in 1983 to allow for government investment certificates to be issued to facilitate the bank's liquidity operations. as part of the long term objective of developing a comprehensive islamic financial system operating side - by - side with the conventional banking system, a year after the establishment of bank islam, a takaful or islamic insurance company was established under the takaful act to provide the coverage for islamic financing. in the second phase of the development of islamic banking, conventional banking institutions were permitted to offer islamic banking products and services on a window basis to leverage on the existing infrastructure, including staff and branch network, and achieve wider market and cost optimisation. this landmark policy was undertaken ten years after the establishment of the full islamic bank to allow for its greater outreach. the window operations opened the door for the existing conventional banks to participate in the islamic banking market for both the muslim and non - muslim communities. under a pilot programme, three conventional banks were initially allowed to offer islamic banking products and services. then in early 1994, together with the establishment of the islamic interbank market, a dual banking system was created. the interbank market is integral to the smooth functioning of the islamic banking system, and became the first of such models. concurrently, firewalls between the conventional and islamic funds were put in place, which included separation of capital funds, cheque clearing system, clearing account with the central bank, settlement account and reporting system