The regulatory framework in Malaysia has marked another milestone in the financial market with the introduction of IFSA and FSA in 2013 to cater to the growing market of the country’s financial industry. The sophisticated Malaysian financial industry running both the conventional and Islamic finance in a parallel financial system call for a need in more stable regulatory framework. The new law is the envisioned to modernise the current conduct of and supervision of financial institution in Malaysia.
Sources: Bank Negara Malaysia
The new laws enacted repealed a number of separate laws as measure to promote more robust regulatory framework for the market. The FSA 2013 and IFSA 2013 will place Malaysia’s financial sector, encompassing the banking system, the insurance/takaful sector, the financial market and payment systems and other financial intermediaries, on a platform for advancing forward as sound financial system. Such move is important to enable the Malaysian financial system to meet the new demands for financing which in line with Malaysia’s economic transformation programmes, the changing demographics of Malaysian population, and the increasing integration of the Malaysian economy with the region and the world.
Malaysia’s new Islamic Financial Services Act (IFSA) has been introduced to provide a stronger legal foundation to spur the growth of Islamic finance sector. The Act provides a legal platform for development of Islamic finance in Malaysia which is reflected upon a comprehensive regulatory framework on specificities of the various Islamic financial contracts and supports on the effective application of Shariah financial contracts in the offerring of Islamic financial products and services.
This marked a significant milestone in aligning the shariah requirements of Islamic financial services in regulatory principles.
The contract-based regulatory framework also gives regulators greater oversight and powers to further scrutinize financial holding companies and non-regulated entities if they pose a risk to financial stability. It is also believed that Investors’ protection are improved as there are provisions that requires banks to distinguish deposits made for savings from those made for investments.
Source: Bank Negara Malaysia
In effort to align the regulatory principles with the Shariah requirements in the services, there are three (3) noteworthy features embedded in the new legislation.
Figure 4: Noteworthy Elements in IFSA
Source: Financial Stability and Payment Systems Report 2012, Bank Negara Malaysia
With a comprehensive regulatory framework in place, it is with hope that the growth of Islamic finance in Malaysia will further spur and that this move may be taken as an example for other key markets in advancing the islamic financial system together at global scale.