markets and integration have created a more competitive environment. in aligning to the rapidly changing and increasingly challenging global environment with significant growth in world trade and enhanced international linkages with global economies, the foreign exchange administration ( fea ) rules have been progressively liberalized to promote flexibility and competitiveness of the economy while safeguarding monetary and financial stability. the philosophy on the liberalisation of the foreign exchange administration rules takes into account the readiness of the economy which includes sound macroeconomic fundamentals and prudent fiscal policy, a well diversified financial market with sound and stable financial system that is able to withstand external shocks, liquid and efficient capital market and healthy balance of payments position that is supported by an effective and well functioning surveillance mechanism. the country ’ s improved economic fundamentals and the resilient financial system have enabled the gradual pace of liberalisation of the fea rules since 2003. a fact that is often over looked is that, during the recent crisis, contrary to actions undertaken by many, malaysia had further liberalized the fea rules to promote greater efficiency in the conduct of international trade, promote a conducive business environment and to allow the use of domestic currency in the settlement of trade with the country ’ s major trading partners. this is a timely measure, given the country ’ s strong linkages with the global and regional economies in particular, the asian economies. the various measures put in place by the authorities have enabled malaysia to be ranked as the top 10 most competitive nation in the world economic report by imd, switzerland. on ease of doing business, fea ’ s ranking had also improved significantly from 13th ( which is one of the most problematic ) in 2005 / 2006 to 2nd place ( easiest for doing business ) in 2009 / 2010 reflecting partly the stakeholders ’ positive assessment on fea to support the conduct of business in malaysia. the country ’ s easy and facilitative regulatory environment including fea rules, had also contributed to malaysia ’ s recent upgrading from a “ secondary emerging market ” to a “ advanced emerging market ” status in the ftse ’ s country classification index, hence the potential increase in non - residents ’ investments in malaysia following the increase in malaysia ’ s weightage in the index from the current level of 2. 41 % by june 2011. in spite of the above and based on our interactions with some of you, there remain a lot of myths and misconceptions on malaysia ’ s fea rules, even amongst the banking fraternity. it is my

banking, takaful and capital market in malaysia. as part of the initiatives, islamic financial products and services that are transacted in international currencies may now be conducted from anywhere in malaysia. malaysia has the physical infrastructure, international connectivity, the communication network, cultural offerings as well as the talents which is inherently advantageous to the mifc. in this first phase, the mifc initiative will introduce measures and incentives to promote the centre in the offering of islamic financial products and services by the diversified range of financial institutions in international currencies to the international and domestic financial community. the key measures and incentives include : i. firstly, the malaysian islamic banks and takaful operators that are offering islamic financial services in international currencies will be granted approval under the existing licence to set up an international currency business units within the institutions. these new divisions will have their own accounts separate from the ringgit transactions of the head offices, while at the same time sharing the same infrastructure with the head offices. this division may benefit from tax and other incentives that may be introduced. this measure will apply to the islamic banks and takaful operators licensed under the islamic banking act and takaful act respectively to operate in the islamic financial system as well as to the existing financial institutions which are eligible to participate in the islamic financial services. this is also expected to enhance the capability of the foreign players that have identified malaysia as their centre to serve the regional markets. international entities will also be able to participate via foreign interest of up to 49 percent in islamic banks and takaful companies. investment funds set up in malaysia will be able to enjoy the double tax agreements that malaysia has entered into with over 60 treaty partner countries. ii. second, bank negara malaysia will issue new conditional licences under the islamic banking act to qualified foreign and malaysian financial institutions to conduct the full range of islamic banking business in international currencies and enjoy the same tax incentives as those accorded to the international currency business units. the new entity will be termed licensed international islamic bank. the business that the licensed international islamic bank would be allowed to undertake includes the wide - ranging business of islamic commercial banking, islamic investment banking and islamic leasing in international currency. iii. third, bank negara malaysia will also issue new conditional registrations under the takaful act to qualified foreign and malaysian insurance companies to conduct the full range of takaful business in international currencies. similar tax treatment will be accorded to these entities