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Sunday, 22 July 2007

Growing significance of Islamic finance in the international financial system: one of six trends in the financial sector in Malaysia



Bank Negara Malaysia will soon introduce a more facilitative process for product innovations with revisions to the new product framework approval, aimed at improving time to market. The new framework will provide for more simplified regulatory processes and allow greater flexibility for well-managed banks and insurers to introduce new products more quickly into the market. Bank Negara deputy governor Datuk Zamani Abdul Ghani said qualifying banks and insurers were expected to exercise this flexibility responsibly and, in particular, with due regard to interests of consumers. He was delivering the text of Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz's keynote address yesterday at the 11th Malaysian Banking Summit themed "The Malaysian Banking Industry Reinvention and Transformation" In her speech, Zeti said the realignment of the regulatory and supervisory structures with the central bank in November last year marked a significant turning point in consolidating these changes. "As a result of the realignment, the Bank is better positioned to conduct effective surveillance of the financial system; to address regulatory overlaps and duplication within the system; to deal more strategically with the weight of multiple objectives and range of issues confronting the financial system, and more importantly, to preserve regulatory neutrality in the management of similar risks between different financial service providers," she said. Zeti said in looking at the future terrain of the financial sector in Malaysia, six trends were particularly important. The six trends are the changing configuration of the global economy and global financial markets, regional economic and financial integration, financial sector development amidst increased liberalisation in the Asian region, increased role of domestic demand in Asian economies, growing significance of Islamic finance in the international financial system, and developments in regulatory structures and approaches. "It can be expected that all these trends will have a significant bearing on the future of the banking industry," she said, adding that two dimensions of regulatory change would be relevant to the context of the new environment. She said the emphasis on creating a strong risk management culture that was fundamental to sound banking operations would become significantly more pronounced. Zeti said the transition to Basel II and the implementation of the risk-based supervisory regime were important elements of the change. "Regulations will continue to focus more on facilitating market-led adjustments that will allow the industry to evolve in response to market developments, while maintaining a sufficient degree of regulatory oversight to maintain financial stability and public confidence. "This includes the adoption of principles-based regulations and an increased focus on harnessing market forces and discipline, as well as internal oversight functions, to reinforce prudential regulation and supervision. The aim is to promote a more efficient and responsive financial system," she said. She said banks would increasingly be exposed to external developments and forces of market discipline, and that there were several particular areas in which banking institutions could take strategic positions to influence such developments.

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