to growth and development. this brings me to the second implication of the changing financial regulatory landscape in respect of preserving financial stability and the broader agenda of effective and efficient financial intermediation, taking into consideration the unique considerations in islamic finance. ladies and gentlemen, a sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and risk taking has been widely cited as part of the root cause of the recent global financial crisis. indeed, the pre - crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. whilst there is general support for the reform measures, there is also concern on the dangers of over - reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. the concern is specifically on the unintended consequences of the regulatory reform. financial stability is not an end in itself ; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. this presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation. a careful assessment needs to be made of the potential medium and longterm effects of the proposed reforms on market structures and behaviour. these considerations are equally relevant in the context of islamic finance. the assessment on the aims and relevance of each of the proposed reform measures needs to take into account the two important considerations in islamic finance ; the need to support sustainable and responsible innovation, and secondly, to leverage on its inbuilt strengths that set islamic finance apart in performing its role in supporting the efficient mobilisation and allocation of resources to generate real economic activities. given the damaging effects of complexity and opacity associated with the recent unfettered innovative activities in the conventional financial markets, it has resulted in a reassessment of the role and benefits of financial innovation. in islamic finance, innovation is key in pushing the frontier of market development to generate the range of products and

to provide funding to each other, resulting in the freezing of the wholesale money market in several developed economies. this resulted in short term liquidity to evaporate affecting participants that were too dependent on the market for funding. this largely stemmed from poor liquidity risk management practices, and has now prompted the basel committee to develop new proposals for global liquidity management standards. in the context of islamic finance, the impact of the proposed basel requirement to maintain sufficient cushion of high quality liquid assets needs to be carefully considered, as the infrastructure and tools for liquidity risk management by islamic banks is still in its infancy in many jurisdictions. a very narrow definition of liquid assets that is currently proposed may exacerbate liquidity risks in many islamic financial markets in which islamic banks compete with conventional counterparts for the limited stock of shariahcompliant government securities. this will certainly increase compliance cost and render the market illiquid when the demand exceeds supply, placing islamic financial institutions at a disadvantage. the importance of a robust liquidity management infrastructure for islamic financial institutions is well - recognised. the growing internationalisation and cross - border activities in islamic finance in recent years further accentuates the importance to enhance the ability of the islamic financial system to withstand shocks from externalities. moreover, access to a robust liquidity management infrastructure will reduce the cost of intermediation which is an important enabler for a more efficient and competitive islamic financial system. recognising that liquidity management in the islamic financial system is still under - developed, a liquidity task force was established by the ifsb in 2009 with the aim to formulate an institutional arrangement to address this need. significant progress has already been made in this endeavor with several key proposals now at the final stage for operationalisation. when operationalised, this liquidity mechanism will be another landmark development for islamic finance. conclusion the recent global financial crisis has spurred the resolve of the world community to chart a new course towards greater and lasting social and economic stability with fairness and accountability. whilst this presents a unique opportunity for islamic finance to transition into the next development stage of greater international integration, there needs to be a higher level of resilience to withstand the new challenges it will bring. this, in essence, requires the strengthening of the financial infrastructure to preserve the soundness and stability of the islamic financial system. indeed, our collective will to mobilise a higher level of global cooperation in promoting this outcome will enhance the prospects of islamic finance to contribute towards securing global