zeti akhtar aziz : islamic finance – the new regulatory challenge introductory remarks by dr zeti akhtar aziz, governor of the central bank of malaysia, at the book launch of “ islamic finance – the new regulatory challenge, 2nd edition ”, kuala lumpur, 22 july 2013. * * * it is my pleasure to be here this afternoon to witness the launch of the second edition of “ islamic finance : the new regulatory challenge ”. as the islamic financial industry transitions into a new era of growth and development in this post - crisis world, the evolving regulatory reforms that are taking place to strengthen the resilience of the financial industry has presented wide ranging challenges in the implementation of the reforms and in also ensuring a more inclusive and stainable growth. the various dimensions of these regulatory challenges and its impact on islamic finance are captured in the publication that is being launching today. it is indeed a more challenging time for financial regulators and policymakers worldwide. priorities for strengthening financial stability and growth are now focused on achieving global financial systems that serve the needs of the real economy. driven by concerns to ensure that banking institutions are more robust against mutil - faceted and more complex dimensions of risks going into the future, regulatory efforts are being directed at significantly strengthening the capital and liquidity structures of banks, and ensuring that there is better alignment between risk - taking behaviours and long - term viability as well as ethical conduct. at the centre of the reforms have been the basel iii reform package, principles for riskaligned compensation structures and improving the consistency of regulatory regimes across the different parts of the financial system, including the shadow banking institutions. significant work is also progressing to strengthen resolution regimes and financial safety nets, particularly in a cross - border context. given the specificities of islamic financial institutions, the implementation of these reforms require a careful examination of the different implications that they present for individual institutions and the system as a whole. we are now witnessing wave of the internationalisation of islamic finance as the role of islamic finance has expanded to become significantly more globalised. this has resulted in domestic islamic financial systems to become more inter connected and with the consequence that integrated, risks are more rapidly transmitted across the financial system. building on the foundations that have been put in place with the adoption of prudential standards introduced by the islamic financial services board ( ifsb ) in the key areas of capital adequacy, risk management, corporate governance and shariah governance, the regulatory, supervisory and legal framework

taken. to my mind, there are three perennial issues facing statisticians and authorities ; the extent of data coverage, granularity and timeliness. indeed, it has been often noted that the surprise element at the onset of economic and financial crisis is often due to the lack of high quality, comprehensive and timely data. for example, the asian financial crisis revealed major gaps in statistical coverage, especially on detailed cross border exposures and indicators for financial soundness, which had permitted serious vulnerabilities to go undetected and unresolved for a long time. another key lesson learnt, was from the global financial crisis, where the lack of data and monitoring of financial innovation that had allowed the build up of financial risks to go undetected until it was too late. another good example was the existent of a large shadow banking system that is unregulated and unsupervised. at the same time, insufficient coverage and depth of information can potentially place policymakers at the risk of deriving at the wrong conclusion and thus, prescribing the wrong policy measures or prescriptions. the decisions that we make are only as good as the data on which it is based. in this respect, i would highlight two areas in particular that requires further data compilation. first, in the area of labour market statistics, there are notable gaps in terms of data collection on the economy - wide wages, hours worked per labour, productivity index, unit labour cost and duration of employment. we also do not have data and enough information on the kind of jobs that the economy is producing, either by sector, wage level, type of jobs and for whom the jobs are created. the data gaps would complicate the assessment on key issues such as the sustainability of household indebtedness, whether we are creating the right type of jobs or whether our policies are providing long term or temporary employment. second, there are significant gaps in terms of balance sheet data, especially for households and corporates. this deficiency in data complicates detection of vulnerabilities, build up of risks and propagation of shocks from one sector to another. i hope the discussion today would provide insights into dealing with some of these issues i earlier mentioned. at this conference, we will have the opportunity to examine areas which we can improve so that our statistics are credible, relevant and timely, would facilitate informed policy formulation and decision making by the authorities, and enable informed decision makings by economic agents such as