UAE and Malaysia editor Paul Lee‘s commentary examines Malaysia as an example of a centralized model of regulating Sharīʿah compliance in Islamic finance.
“When parties seek to engage in Islamic finance in a jurisdiction, that jurisdiction must make a determination as to whether, and how, to regulate Islamic finance. Beyond those issues arising in conventional finance, Islamic finance requires dimension of compliance with Sharīʿah principles that various financial centers have approached in different ways. This commentary examines a centralized model for the regulation of Islamic finance. The term ‘centralized model’ describes an approach involving the presence of a single authority that makes substantive determinations on whether a particular financial activity or instrument is Sharīʿah compliant.
The regulation of Islamic finance in Malaysia, with the exception of Labuan International Offshore Financial Centre,falls under the purview of two principal authorities: the Bank Negara Malaysia (the “Bank”) and Malaysia’s Central Bank, and the Securities Commission of Malaysia (the “Commission”). Both the Bank and the Commission may issue compulsory guidelines on Sharīʿah compliance, and both have their own Sharīʿah Advisory Council (“SAC”) for the purpose of advising and ruling on matters related to Islamic finance…”