ISB 658

ISLAMIC FINANCIAL
LEGAL FRAMEWORK

Chapter
2

Overview of Legal and

Regulatory Framework
of Islamic Finance
Assoc. Prof Wan Asma’ Wan Abu
Bakar
wanasma@kedah.uitm.edu.my
 CHAPTER 2. OVERVIEW OF LEGAL AND
REGULATORY FRAMEWORK OF ISLAMIC
FINANCE

2.1 Conceptual Meaning of Legal Framework

2.2 The Importance of Legal Framework

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2.3 International Institutions and Regulatory
Bodies of Islamic Finance :
 AAOIFI
 IIFM

 IFSB

 IIRA

 IILM

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MALAYSIAN FINANCIAL SYSTEM :

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DUAL BANKING SYSTEM
ISRA 2012 pg 647 Dual Banking System

Constituents •Conventinal banking

•Islamic banking
of Malaysian •Insurance Malaysian
•Takaful
Financial •Money Market Financial
• Islamic Money Market
System •Capital Market System
• Islamic Capital Market

CBMA (2009)
COVENTIONAL FINANCIAL
SYSTEM
ISLAMIC FINANCIAL SYSTEM :
•BAFIA 1989 •IBA 1983
Legal •Insurance Act 1996 •Takaful Act 1984
Governance •Government Funding Act
•Loan Local Act 1959
2005
•Treasury Bills Local Act •Capital Market & services
1946 Act 2007
•Capital Market & •CBA 2009 : stipulates that the courts
and arbitrators shall refer to the NSAC on
Services Act 2007 matters pertaining to shariah+ +SAC
decisions shall be bnding on them.
Financial Institution

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 2.1 CONCEPTUAL MEANING OF LEGAL
FRAMEWORK

Q : What is Regulatory Framework?

A : Refers to the collection of important rules,

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standards processes and institution. It involves the
application of rules and giving guidance as to the
acceptable standards of conduct within the area
being regulated. (Regulatory Requirements, Legal Documentation,Acounting,
Auditing and Documentation in ICM,Lexis-Nexis 2009, pg 13).

Q: What is Regulatory Structure;

A: e.g. : Roman law /civil law /Islamic law.
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In Malaysia there are two Regulatory bodies
governing different components in the Islamic
financial system :

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1.Bank Negara Malaysia (BNM) is the central
bank of Malaysia controlling :
 Islamic banking and finance,
 takaful as well as

 conventional banking and insurance;

2. The Securities Commission (SC) oversees the

capital markets.

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 2.2 The Importance of Legal
Framework
The purpose of regulatory framework in Islamic
Finance:

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 To protect the consumer/the interest of all

parties appropriate sanctions which are

enforceable in the courts of law

 To ensure fair restrictions on competition

 To maintain appropriate standards and

conducts of Islamic finance
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 2.3 INTERNATIONAL INSTITUTIONS AND
REGULATORY BODIES OF ISLAMIC FINANCE

2.4.1 Accounting and Auditing Organization For

IFIs (AAOIFI).

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2.4.2 International Islamic Financial Market
(IIFM)
2.4.3 Islamic Financial Services Board (IFSB)
2.4.4 Islamic International rating Agency (IIRA)
2.4.5 International Islamic liquidity management
Corporation ( IILM).

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 2.4.1 Accounting and Auditing
Organization For IFIs (AAOIFI).

Wan Asma'- ISB658.

Please refer to :
 http://www.aaoifi.com

 Islamic Financial System ,ISRA 2011Pg 123

 Introduction to ICM Lexis-Nexis (2009) page 48

 Islamic Securities (Sukuk) Market- Lexis-Nexis

page 44.

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 2.4.2 International Islamic Financial
Market (IIFM)

Please refer to :

Wan Asma'- ISB658

 http://www. iifm.net

 Islamic Financial System ,ISRA 2011,Page 124.

 Introduction to ICM Lexis-Nexis (2009) pages

51-52.
 Islamic Securities (Sukuk) Market- Lexis-Nexis

pages 45-46.

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 2.4.3 Islamic Financial Services Board
(IFSB)

Please refer to :

Wan Asma'- ISB658

 http://www.ifsb.org

 Islamic Financial System ,ISRA 2011,Page 125.

 Regulatory Requirements, Legal Documentation,

Accounting, Auditing and Documentation in ICM, Lexis-
Nexis 2009, page 28.
 Introduction to ICM Lexis-Nexis (2009) page 50.
 Islamic Securities (Sukuk) Market- Lexis-Nexis

pages 43-44 lexis (sukuk market).

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 2.4.4 Islamic International rating Agency
(IIRA)

Please refer to :

Wan Asma'- ISB658

 Islamic Financial System ,ISRA 2011,Page 126.
 Introduction to ICM Lexis-Nexis (2009) pages
53.
 Islamic Securities (Sukuk) Market- Lexis-Nexis

pages 45-46.

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 2.4.5 International Islamic liquidity
management Corporation ( IILM).

Please refer to :

Wan Asma'- ISB658

 http://www. iilm.net

 Islamic Financial System ,ISRA 2011,Page 126.

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