muhammad bin ibrahim : future responsibility and response - ability proofing compliance - keynote address by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the 9th international conference on financial crime and terrorism financing ( ifctf ) " future proofing compliance : responsibility and response - ability ", kuala lumpur, 4 october 2017. * * * " compliance, past and future " this is an important and serious gathering. i am encouraged to see many leaders and key compliance officers of the financial industry here at the international conference on financial crimes and terrorism financing, signifying the industry ’ s commitment to a safer and more secured financial system. it is worth repeating that public trust and confidence in the financial system cannot be compromised. the cost of financial crimes and terrorism financing are staggering. based on the united nations office on drugs and crime ( unodc ), money laundering transactions are estimated to cost economies between 2 % to 5 % of global gdp. this equals to usd1 to 2 trillion annually. it is a humongous amount. beyond monetary terms, these activities have destructive consequences for the lives of many, especially the poor and underprivileged. we must do better on this if we really want to ‘ future - proof ’ our financial system. three points are worth mentioning on compliance : first, it is not the end, it is a means to an end ; second, it should be viewed within a broader context of a financial institution ’ s responsibilities to society ; and third, it should be approached in partnership with other key participants in the financial system. compliance as a means to an end the past decade has been a turning point for compliance. arising from major systemic failures of governance, regulators have since elevated the importance of compliance. for good reason, this has led to tighter regulations, greater scrutiny and stronger enforcement. the industry has in turn, invested heavily in their compliance function. it is estimated that some firms could spend up to 10 % of their revenues on compliance within the next few years. this is by no means an insignificant amount. yet, as we have seen over the recent years, this has not put a stop to money laundering and terrorism financing. a case in point is a major bank in the asia pacific region which is being investigated for more than 50, 000 violations of money laundering and terrorism financing. perhaps we need to take a step back and question if the industry has the right understanding of compliance. if the motivation for the increased compliance is merely

range of islamic financial instruments available to meet the demand of the islamic investors. in the absence of a comprehensive islamic financial system with financial services based on shariah principles, the development of islamic banking and finance would be hindered. the government would need to assume an important role in the development of the islamic financial system. the role of the government is, amongst others to provide the enabling environment and put in place from the outset, the necessary infrastructure through the formulation of a comprehensive set of legal and regulatory framework for islamic banking and finance. in addition, this framework needs to be reinforced by a shariah framework to ensure that all financial transactions are shariah - compliant. islamic financial operations would thus need to be based not only on best practices, but also satisfy the tenets of the shariah. for islamic banking and finance to be sustainable, compliance with shariah principles alone is not sufficient. over the long run, customers and businesses demand for quality in the products and services that islamic finance offers. this is the challenge for islamic banking and finance, to be able to provide a comprehensive range of islamic financial products and services that are not only innovative and competitive but shariah compliant. let me now turn to the development of the takaful industry. takaful as a system of islamic insurance, is based on co - operation and mutual help for the good of the society at large. although takaful has been in the market for more than 20 years, it has yet to make significant inroads. it should however, be noted that although the conventional insurance market is deeply entrenched in several of the muslim countries, the percentage of the muslim population that are insured is relatively low. the market penetration level is very low, notably less than 5 per cent in many muslim countries. in malaysia, the level of market penetration in terms of takaful certificates in force over the total population is only 3. 8 per cent compared to a market penetration for conventional insurance of 34. 7 per cent. it therefore represents an enormous potential market that remains yet untapped. takaful operators assume an important role as economic or financial agents as they essentially mobilise long - term funds in the form of contributions and invest them in the available islamic investment avenues. as custodians of public funds, takaful operators must ensure that the takaful funds are invested in compliance with shariah and are soundly managed to instil public confidence.