BNM: Uphold legal certainty for effective dispute resolution
KUALALUMPUR: Malaysia must uphold legal certainty for effective dispute resolution to remain as a leading Islamic financial hub, said Deputy Governor of Bank Negara Malaysia, Abdul Rasheed Ghaffour.
He said today, legal certainty was widely said to be central to the rule of law.
“It is important that the law be accessible, clear and predictable and people should be assured that questions of legal right and liability would be determined by rules that met these characteristics,” he said at the Association of Islamic Banking Institutions Malaysia Law seminar on‘ Practical Aspects of Dispute Resolution in Islamic Finance Facilities’ here yesterday.
The text of his speech was released here yesterday.
Abdul Rasheed said in the context of Islamic finance, the task of upholding legal certainty was even more complex for two reasons.
“First, shariah principles and requirements must be infused into the law of the land from the religious sources.
“Secondly, these prescriptions, written many centuries ago, must be applied to the context of modern finance. For brevity, I will refer to these two aspects of legal certainty as shariah certainty,” he said.
He said today, Malaysia is internationally recognised for its comprehensive legal and regulatory framework for Islamic finance with many emerging Islamic finance markets seeing Malaysia as a model to emulate in this respect.
“Looking back, I believe that the certainty provided by our legal and regulatory framework has contributed significantly to the development of a sound and progressive Islamic financial system in Malaysia,” he said.
Abdul Rasheed said global Islamic financial assets stood at US$ 1.9 trillion ( US$ 1 = RM4.18) in 2016 and were estimated to reach US$ 3.2 trillion by 2020 with Muslims now making up 24 per cent of the world’s population.
“This is a very large and rapidly expanding market and the potential is enormous. The Islamic financial institutions and legal professionals in Malaysia stand to gain from this, only if they position themselves well enough to serve this boom,” he said.
He said shariah certainty entailed two unique challenges whereby shariah prescriptions must both be infused into law, as well as applied to contemporary settings.
“These challenges are augmented by the fast- changing times which business is constantly evolving, and finance is likewise far from static.
“The expectation now for our legal system is to apply the principles of shariah to novel products and approaches in a timely manner, while remaining clear, sufficiently flexible to innovation and yet faithful to the tenets of the religious sources,” he said.
Abdul Rasheed said this was a tall order and the jurisdiction which succeeded in doing this most reliably would stand in good position to ride the wave of the Islamic finance boom.
The certainty around the shariah rules applicable to a particular Islamic finance facility was crucial and equally important was certainly on the legal enforceability of obligations in the event that there was noncompliance to the relevant sariah requirements, he said.
“Uncertainty in any of these areas may lead investors to view such facilities as high risk instruments, and in extreme cases even destabilise the Islamic finance market more generally,” he said.
He said Malaysia needed to promote continued certainty as it moved into the future and this would require excellence at both the institutional and individual levels.