mohd razif bin abd kadir : islamic finance and the collaboration between malaysia and bahrain special remarks by mr mohd razif bin abd kadir, deputy governor of the central bank of malaysia, at the signing ceremony of memorandum of understanding between bursa malaysia – bahrain financial exchange, manama, 24 january 2010. * * * it is my great pleasure to be here today on this occasion of the signing ceremony of the memorandum of understanding between bursa malaysia berhad and the bahrain financial exchange. the signing we are about to witness today will lay the foundation for the collaboration by the two exchanges on bursa suq al - sila ’. i wish to thank the two exchanges for inviting me to give some remarks at this auspicious occasion. i also wish to applaud this commendable effort by the two exchanges which marks another important milestone in the development of the global islamic financial services industry and in bridging further our two countries. maintaining the stability of islamic financial system this effort takes place at a time when the global economy is entering into a period of improved international economic and financial conditions. the global financial crisis has highlighted several structural weaknesses and drawbacks in the international financial system. while islamic finance is not insulated from the effects of the current environment, the shariah principles and values that are inherent in islamic finance provide an important underlying foundation. the islamic financial system has continued, during this period, to become increasingly integrated with the international financial system. however, as this interconnectivity intensifies, the exposure to risks arising from financial and economic developments from other markets will increase. indeed disruptions in the functioning of financial markets have brought the focus of attention on financial stability issues. in addition, this recent financial market turmoil has demonstrated the consequences of liquidity constraints. this has accentuated the importance of a strong and well developed liquidity management infrastructure. essentially, international islamic financial transactions will require the development of the supporting financial infrastructure, in particular, the systems and structures for the management of liquidity. several key measures are required to improve the ability of the islamic financial system in managing such disruptions and ensure its stability. a well functioning markets and liquidity management framework are vital for islamic financial institutions to effectively manage funding of islamic financial transactions. these would also facilitate cross border capital flows and help expand the islamic financial markets as well as manage liquidity risks in a shariah compliant manner. this current global financial crisis has prompted a

operations with the changes in operating environment and risk management expectations. we have learned and relearned abundant lessons from the experience of the past crisis and many of those lessons lead to changes in regulation, supervision, enforcement and risk management practices throughout the world. as these new rules are designed and implemented, we are expected to adapt and change our business models and risk practices. bank negara malaysia is adapting as well. i have highlighted earlier the development on the regulation and supervision ’ s front. allow me to highlight key developments on the enforcement front. given that combating financial crime continues to be one of our key priorities in sustaining financial sector integrity, bank negara malaysia is intensifying enforcement actions on aml / cft non - compliances and breaches of legislations. since 2012, bank negara malaysia had compounded several banks and money service business operators for various non - compliances with the anti - money laundering and anti - terrorist financing act 2001 ( amlatfa ). besides amlatfa, the new aml / cft policies are also issued under the fsa and ifsa. fsa and ifsa provide bank negara malaysia with wider enforcement powers including the administrative and civil sanctions for breaches under these acts. fsa and ifsa also allow for enforcement actions taken under these legislations to be made public. this means that the reputational stake for non - compliance has been set higher. bis central bankers ’ speeches this is necessary to strengthen financial sector ’ s compliance to aml / cft policies and preserve the integrity of the financial system from being abuse for criminal activities. bank negara malaysia recognises that the vast majority of the dnfbps seek to comply with the law and for certain profession such as the lawyers and the accountants, through their ethical obligations. however, given that the controls on money laundering risks implemented at the financial institutions are increasingly tightened, there is this emerging consequence that dnfbps, particularly the legal professionals, are increasingly becoming more attractive for the criminals to launder their ill - gotten gain. according to the report published by the fatf on money laundering involving legal professionals, key among those factors are the perception that the involvement of legal professionals provides a further step in the chain to frustrate investigation by law enforcement authorities. thus, it is imperative for dnfbps to increase their awareness and understanding on how their industry can be susceptible to money laundering and takes necessary measures commensurate with the money laundering and terrorism financing risks