be. i would like to focus on a few key changes over the years relevant to my thoughts on trustworthiness in banking and the need for supervision. first and foremost, the alignment of interest between the owners / managers of banks and their customers has weakened significantly. in the “ good old days ”, banks were often organised in the form of partnership and not as limited companies. the owners or managers individually and collectively had their family wealth at stake in ensuring that the banking business was run not only profitably but also prudently. any mismanagement of the affairs of the bank could wipe out their family wealth and, in some instances, lead to imprisonment. any partner of a bank had the duty and right to warn against and take steps to constrain another partner from taking excessive risks, if such risks could bring down not just the culprit but all the partners who were jointly responsible for the well - being of the firm. in contrast, in modern times, banks operate predominantly in the form of limited companies, often listed on stock exchanges, with very diverse public ownership. senior managers who run the bank do not have most of their personal worth tied up in the firm and the prospects for life - long employment have become few and far between. nowadays ( in particular during the period preceding the gfc ), senior bank managers are generally rewarded by a combination of very high salaries coupled with very substantial annual bonuses tied to performance in the preceding year. even where share options are included in their remuneration packages, the lock up or vesting period is relatively short – just a couple of years at most. the effect of this change is that the previously strong alignment of long term interest between bankers and customers has been materially weakened, leading to the classic situation of an agency problem, with the bank management using depositor funds to leverage up the scale of business while the downside risk that they face in doing so is limited. the problem became rather apparent thanks to the gfc, which witnessed cases in which bank managers took excessive risks or otherwise breached the trust of their customers in the pursuit of profit and bonuses. in some infamous cases, such as aigfp and merrill lynch, sizable bonuses, funded by taxpayers ’ money, were still paid to managers even though their actions had arguably contributed to the failure of the firms. this “ heads i win, tails you lose ” regime in modern banking is clearly a recipe for disaster and can do very little to help enhance the trust and reputation of

. 8. on this, i am very pleased to see that an amendment bill has been introduced into the legislative council earlier this year. the bill adopts a prescriptive and religion - neutral approach, and covers five of the most common types of sukuk globally. products that can meet the key features and qualifying conditions specified in the bill will be given tax treatments similar to those currently afforded to conventional bonds. this means that sukuk issuers and investors alike will no longer be subject to additional tax and stamp duty charges over and above what they would need to pay for conventional bonds. so, passage of the bill will be a very positive step forward in furthering the development of islamic finance in hong kong. synergy between hong kong and malaysia 9. with the legal infrastructure to be in place soon, the next important step will be to develop the islamic financial markets here. we definitely have a lot to learn from malaysia in respect of product development and market operation. as i see it, hong kong and malaysia each has different edges in the financial services industry, and the potential synergy between the two places in developing the islamic financial markets is tremendous. 10. malaysia is undoubtedly an important leading centre in the global islamic finance industry that has accumulated vast experiences and invaluable expertise over the past three decades. it has developed a well - diversified islamic financial market, offering a full suite of products covering sukuk, islamic equities, islamic funds, islamic etfs, etc. its sukuk market is by far the largest in the world, accounting for more than 70 % of global sukuk issuances last year. 4 it has also put in place well - developed financial infrastructure which can facilitate local and overseas market players alike in conducting islamic financial transactions. 11. on the other hand, hong kong as an international financial centre has developed a deep and highly liquid capital market with a diverse base of investors coming from all around the world. more importantly, with hong kong ’ s unique role as a gateway to mainland china and a leading hub for offshore rmb business, hong kong can offer an ideal platform to link islamic and rmb financing together by developing financial products that are shariah - zawya. bis central bankers ’ speeches compliant and, at the same time, denominated in rmb. through hong kong ’ s platform, international investors in the islamic world can easily tap the appealing growth story of the mainland. this is especially given the fact that