New BAFIA Act

The new Islamic banking and Takaful Acts, currently undergoing legislative process towards its enactment, will be effective next year, says Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz.

It has already gone for first and second reading in Parliament, she said, adding that it would be called the Islamic Financial Services Act and Islamic Finance and Takaful Act.

"Right now the industry is covered by the Banking and Financial Institutions Act 1989 (BAFIA) and the Islamic Financial Services Act which will come into operations...we expect next year, " she told reporters on the sidelines of the final day of the Eighth World Islamic Economic Forum (WIEF) here today.

Earlier, in her keynote address, she said this new legal framework would not only streamline the legal requirements across sectors but would also ensure that the law was reflective of the nature and features of Shariah contracts.

It would also ensure that the degree of regulation would commensurate the level of risks that Islamic financial institutions, markets and products pose to the overall financial system, Zeti said.

"The greater clarity on the legal and prudential requirements underpinned by Shariah principles will enable participants of the Islamic financial system to align to their practices and expectations accordingly when undertaking Islamic financial business and transactions," she said.

The central bank Governor said while Islamic finance practitioners and scholars continue to draw from the source of fiqh muamalat to create new and innovative instruments, the legal framework needed to be further strengthened to ensure alignment with new market developments.

This is to ensure that it continued to lend certainty and predictability to innovative products and financial transactions, she said.

Furthermore, as Islamic financial activities venture beyond national boundaries, the development of legal frameworks that was facilitative of cross borders transactions was pivotal, she added.