Islamic Financial Governance: Regulatory & International Standards Setting

Abstract

Islamic financial systems functions within its own rules and regulations framework, while also competing within the same ecosystem as conventional finance operations in various jurisdictions. Regulating a dual system of financial players (Islamic and conventional) within a single jurisdiction requires a specific framework that can ensure (financial) integrity and promote confidence among all stakeholders. Consumers look to the regulator to provide transparency for Sharī’ah compliance options, commercial viability and sustainability, and avenues for dispute resolutions. While conventional operators and their consumers expect fair opportunities. One challenge is setting a standard of reference for global Islamic finance players, by closing the gap between the various Islamic schools of thought (mazhab), and its application in each Islamic country. This requires strong buy-ins from Sharī’ah scholars, regulators and Islamic finance stakeholders. This presentation discusses the approaches taken by Bank Negara Malaysia as the regulator, as well as the Accounting and Auditing Organization for Islamic Financial Institutions, as the international standard setting body, and the challenges in constructing Islamic finance operations mechanisms, domestically and globally, which require concerted efforts by all stakeholders towards better governance of the industry.