. ( iii ) proper implementation of evolving guidance of regulatory standards for special features of islamic without comprising international standards to which both islamic and conventional banks are to be subject too. ( iv ) development of more interfaces between regulators – so far there seems to have been more systematic alliance between central banks to coordinate standard setting and its compliance. there is however need for better coordination between bank and non bank regulators and also for later to launch more initiatives to nurture nonbank islamic sector. the mckinsey qaurterly : rethinking regulation for islamic banking. nasr - eddine benaissa, xavier jopart, and ozgur tanrikulu. 2007.

##s required for risks associated with islamic banking solution and the required capital treatment for special and unique characteristics of islamic finance business. the differences in the assets and liability structure in islamic finance and the complexities associated with different islamic products, however, tend to alter the risk perception associated with this financial system. 9. as such, work of ifsb and industry continues to be critical to evolve better understanding of different risks and how to cushion for such risks. ensuring harmonization and consistent adoption, application and implementation of these evolving standards for islamic finance and products will be a challenge but absolutely required to avoid regulatory arbitrage by industry and certain islamic jurisdictions. potential for such distortions will be inevitable as islamic prudential regulatory and capital adequacy standards require more guidance and awareness. furthermore, in line with the spirit of bank international settlement subscribed regulatory standards, ifsb standards are also for voluntary, rather than compulsory compliance. while this would result in differences in timing of adoption of such standards by islamic industry, it is expected that with growing awareness market and investors will be factoring in differences in compliance in their choice of institutions. 10. fourth critical driver of islamic finance would be development and adoption of simple and standard legal frameworks. contracts are at the core of islamic transactions which define the rules for sale and purchase / trade / exchange of goods and services. contracts are structured around the nature of transaction which could be either in the form of trade financing ; asset based financing or different forms of partnerships. under islamic finance preference is given to trading of physical assets as well as trading of rights and with the growing hybrid products the demands for legal documentation has multiplied and is adding to the cost of transaction. certainty of contract is another important element under islamic contract law. the body of islamic contract law while rich and supportive of participant ’ s right in transaction is onerous, complex and prone to different interpretations and rulings. equally challenging are questions of enforceability of terms and conditions and lack of ability of courts to arbitrate litigation in case of dispute on contracts. 11. fifth, it has to be recognized that islamic finance is in its evolutionary stage and its sustainability would depend critically on regulators work with islamic scholars to reach flexible and shared, if not unified, understandings on principle elements at international level, despite differences in faiths and disciplines. there are number of faiths and disciplines across muslim jurisdictions ( for e. g. syria and pakistan are financial services authority : islamic finance in the uk : regulation and