Islamic Finance - Capital market oversight (Malaysia).
The Securities Commission is in charge of regulating the financial markets in Malaysia (SC). The SC is a self-funding statutory agency with the authority to conduct investigations and impose penalties to oversee the Malaysian capital market. It was created on March 1, 1993, in accordance with the Securities Commission Act of 1993. The SC reports to the Minister of Finance, and its annual financial reports are laid before parliament.
Among the many regulatory duties performed by the SC are the following: • registering authority for prospectuses of corporations other than unlisted recreational clubs; approving authority for corporate bond issues; supervising exchanges, clearing houses, and central depositories; regulating all matters pertaining to securities and futures contracts; controlling takeovers and mergers of businesses; regulating all matters pertaining to unit trust schemes; licensing and overseeing all licensed individuals; promoting self-regulation; and ensuring. The SC's primary duty of protecting the investor underpins all of these duties.

The SC is required by law to stimulate and promote the growth of the securities and futures markets in Malaysia in addition to carrying out its regulatory responsibilities. The SC has issued a few specific guidelines to govern the Islamic Capital Market (ICM) in Malaysia, including Practice Notes 18 (PN18) and 19 (PN19), which are related to Shari'ah-based unit trust schemes and stipulate that when issuing Islamic bonds, independent Shari'ah advisers must be hired (as stated in the July 2000 Guidelines on the Offering of Private Debt Securities). Practice Note 2 (PN2), which addresses the issuance of ringgit-denominated Islamic bonds for a multilateral development bank or a multilateral financial institution in Malaysia, was released by the SC in November 2004. Contrary to the banking sector, Islamic capital market activities were not subject to separate legislation. All institutions participating in the ICM must follow SC regulations for these activities. Malaysia has always used a dual financial system, with distinct laws governing the banking and Takaful industries.

​The Securities Commission regulates the capital market and, when necessary, adds further rules. The majority of this legislation, which has developed to make it easier to harmonize regulations and processes within Islamic financial services, relates to domestic activities. It offers a thorough regulatory framework that reflects traditional best practices while being tailored to the unique requirements of the Islamic finance sector. As Malaysia strives to become a centre for Islamic finance worldwide, more reforms are likely. More flexibility in terms of international licensing requirements and ease of doing business, as well as adequate incentives for investors and market participants in foreign currency-denominated Islamic financial operations, are anticipated as part of these improvements.

​Islamic Finance – Malaysian Regulatory Framework
Malaysian judicial system
Malaysia's central bank, Bank Negara Malaysia, is in charge of overseeing the country's banking sector (BNM). Under the Central Bank of Malaya Ordinance 1958, it was founded on January 26th, 1959. Promoting monetary stability and a healthy financial structure as well as influencing the credit situation in a way that benefits the nation are two of its key goals. BNM is endowed with broad legal authority to oversee and regulate the financial sector in order to help it achieve its goals. Malaysia has developed a dual financial system with different legal systems. BNM takes into account this parallel strategy because it will give the investment community a choice and advance IFSI development. Some of the pertinent acts include: Act A1217/2006, which was most recently amended in 1994, was incorporated into the Central Bank of Malaysia Act of 1958. The Act outlines the goals of the central bank for overseeing the financial sector. Additionally, it lists the central bank's responsibilities and powers with regard to the creation of money, the upkeep of external reserves, authorized banking activities, specific authority to deal with failing institutions, and relations with the government and other financial institutions, including (Islamic Financial Institutions)IFIs.

The Act also includes general rules regarding, among other things, bank accounts and compounding authority. The Act gave BNM the power to create a Shari'ah advisory council with the authority to determine Islamic law for the purposes of enterprises based on Shari'ah principles. This council would be responsible for overseeing Islamic banking and finance. The BNM oversees and controls the council (section 16B). This is a crucial element for Malaysia, which acknowledges the significance of the national board in harmonizing Shari'ah practices throughout all financial institutions in the nation.
Islamic Banking Act 1983.
The Act outlines the licensing and management requirements for Malaysia's Islamic banking industry. The Act includes regulations for an Islamic bank's financial obligations, ownership, management, and business limits, as well as for its authority to supervise and oversee an Islamic bank and other general provisions like fines. The Act also mandates the appointment of a Shari'ah board for Islamic banks. The Act's primary focus since its passage has been on the licensing of Islamic financial institutions and their operations.

Financial Institutions Act of 1989 (BAFIA).
 The BAFIA, which went into effect on October 1, 1989, issues licenses and oversees institutions like banks, finance firms, merchant banks, discount houses, and money-broking establishments. Additionally, it allows for the regulation of organizations including building societies, factoring firms, leasing firms, and institutions that provide development financing. Beginning in 1994, the Act also applied to the operation of Islamic banking services provided by conventional banks that were granted licenses under the Act pursuant to Section 124. The Act's application, which covers Islamic financial services provided by conventional financial institutions, was made in an effort to attract additional participants to the IFSI and to boost industry competition.

Takaful Act 1984 
For the Takaful industry, separate legislation from the Insurance Act 1996 was developed. The Takaful Act outlines procedures for registering and governing Takaful businesses in Malaysia as well as other matters pertaining to or associated with Takaful. It is divided into four parts and 68 sections. The first section focuses on the definitions and categorizations of the takaful industry as well as the creation of references to related topics. The second section deals with how Takaful business is conducted, including broad limitations on Takaful operators. The third portion covers returns, inquiries, business winding up, and transfer, while the fourth part covers other general provisions. A Takaful operator must be incorporated in accordance with this Act as a company as that term is defined in the Companies Act of 1965 or as a society as that term is registered under the Co-operative Societies Act. The Act mandates the creation of a Shari'ah advisory body as well. The aforementioned legislation is primarily intended to reassure the investment community that regulatory issues specific to Islamic finance must be addressed separately from those affecting conventional financial institutions, especially when the institutions, products, and systems must comply with Shari'ah.

Islamic Finance - ​Bahrain Regulatory Framework on Islamic Finance 

Amiri Decree No. 23 (1973) created the Central Bank of Bahrain (CBB), formerly the Bahrain Monetary Agency (BMA), as the nation's central bank and guardian of the financial system. Its duties included carrying out monetary policy, monitoring and controlling the banking industry, and serving as the government's fiscal agent. It was tasked with making Bahrain a significant global financial hub starting in 1975. The BMA is also in charge of overseeing the kingdom's foreign currency cash reserves.

The BMA's authority was widened in 2002, and it now serves as Bahrain's sole financial institutions regulator. The BMA's area of responsibilities was now expanded to include the supervision and regulation of the insurance and capital markets industries. A comprehensive set of regulatory reforms to modernize and reinforce the licensing structure for banks operating in the kingdom were detailed by the BMA on June 28, 2006. The regulation changes, which became effective on July 1, 2006, allow the BMA to grant licenses based on categories established by regulated activities rather than institution kinds. As a result, the new framework is made more adaptable and inclusive, and it also enables the licensed institutions to respond to market developments more effectively. The integrated new framework's five fundamental licensee groups include conventional banks, Islamic banks, insurance companies, investment firms, and specialized licensees. The streamlining of the existing categories of onshore and offshore banking licenses is a crucial component of the updated framework for banks. 

This makes it possible for offshore banks to conduct controlled onshore commerce. "Retail bank" will take the place of the current bank license subcategory "full commercial bank." A single, streamlined "wholesale bank" license sub-category will replace the two previous offshore sub-categories of offshore banking unit and investment banking license. In terms of deposit taking and credit provision, wholesale banks are now allowed to conduct individual onshore transactions above BD7 million (US$18.62 million), and above US$250,000 for investment business transactions, including the sale of an investment.
According to the Central Bank of Bahrain and Financial Institutions Law of 2006, the BMA became the CBB on September 7, 2006. The BMA's extensive range of additional functions are transferred to the CBB, which continues to be in charge of the Kingdom's monetary and financial regulation. It administers the nation's payments and settlement systems and carries out the Kingdom's monetary and foreign exchange rate policies. It also manages the government's reserves and debt issuance. The CBB oversees all aspects of banking, insurance, investment business, and capital markets as Bahrain's primary financial sector regulator. The CBB ensures regulatory effectiveness within the financial sector as the exclusive financial authority for both conventional and Islamic financial services. The CBB will need to give guidance to focus on the IFSI's dynamism, nonetheless, given the rising proliferation of IFS. Allowing offshore banks to operate domestically is part of Bahrain's ambition to lead the globalization of the Islamic finance sector. Bahrain's regulatory policies and initiatives to advance the IFSI have been integrated under a dual system and a single piece of law.

Additionally, the CBB has created a variety of industry-leading legislative and regulatory efforts to improve the environment for businesses that provide financial services. The Prudential Information and Regulations for Islamic Banks, which were created and released by this central bank as the first in the world particularly for Islamic banks (PIRI). The CBB is distinctive in that it has stated in the open that its rules are designed to adhere to those set forth by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). In addition, a new trust statute that provided a legal framework for the establishing of trusts was released in August 2006. This has immediate application to the issuance of Sukuks, which are primarily built using the trust concept to safeguard the interests of Sukuk investors.

​Islamic Finance - regulations unique to each nation
When international regulating and standard-setting authorities publish pertinent rules and recommendations to support comparative best practices and enable international financial flows, the regulatory environments of the financial industry in many nations may converge. Due to the diverse strategies used by many nations in respect to Islamic financial institutions and services that meet various economic, social, and cultural needs of the financial community, the IFSI faces issues that are similar to these. Particularly, there are differences between jurisdictions in the laws, rules, and oversight of the financial industry. This is ascribed to the various legislative and regulatory histories of the various nations that either adopted a dual system that included both conventional and Islamic financial services, or a single system of Islamic financial services. The competition, growth, and sustainability of the system are significantly impacted by such a policy choice. Because the single system heavily depends on government regulations to mimic the sector, a lack of uniform regulations would hinder its expected expansion and viability.

​Both conventional and Islamic financial services run concurrently under the dual system. By implementing this system, the government is aiming to provide a stable and sound environment for both businesses while also recognizing the necessity for both traditional and Islamic participation. Addressing the rivalry, growth, and stability of both industries as well as those across industries would be a more difficult responsibility. The dual system has brought about variants of IFIs with various models. Only Islamic banks were initially permitted to operate in terms of license types given to IFIs. Later, Islamic windows were added to normal banks to entice conventional banks to compete in the IFSI. 

As a result of rising demand for conventional banks to provide extensive and sophisticated services, Islamic banks were established as affiliates of conventional banks. The standard lending model of conventional banks is modified in the beginning to enable Islamic banking by Islamic banks. Due to the development of trading and investment models, banks are now able to trade and share risks with both investors and their partners, their consumers. The dual system presents issues for the financial authority in terms of determining whether it is desirable to keep distinct laws with separate financial authorities or separate laws with a single financial authority. As several nations pass their own laws regulating Islamic financial institutions, as well as their goods and services, there are distinctions based on the country. However, these nations' monetary policies simultaneously apply to both systems. 

The nations under the spotlight were among the first to use Islamic money. The summary makes it easier to understand how different countries' regulatory and oversight systems have evolved since the establishment of Islamic financial institutions in each one. Due to its many innovative legislative initiatives and strategies, Malaysia assumes a leading position in the development of regulatory infrastructure and governance processes. The Islamic Banking Act was enacted by Malaysia's parliament in 1983 to legalize Islamic banking there. To avoid double taxation that would have resulted from the new banking idea, it also proposed revisions to the Stamp Duty Act and the Real Property Gains Tax in the same year. Malaysia also set the bar for the creation of the dual banking system by appropriately modifying the banking statute. 

More recently, significant changes to the Central Banking Act of Malaysia were enacted in order to formally establish the Central Bank of Malaysia's Shari'ah Advisory Council, ensuring effective Shari'ah governance. The financial authorities can ensure that the governing bodies of the institutions, such as the board of directors, the audit committee, the Shari'ah board, and the governance committee, would not only address the interests of investors and stakeholders but also instill confidence in the public and society through legislation, regulation, and supervision of the Islamic financial institutions. Malaysia has also released a number of guidelines for a tax neutrality policy to make Islamic financial products competitive with conventional goods in terms of tax liabilities, in addition to establishing new legislation to enable and enhance the operations of Islamic finance. The world of Islamic capital markets has seen similar trends. 

The Securities Commissions of Malaysia have issued the necessary regulations in this regard, including the first Islamic real estate investment trusts in contemporary times and regulations on Islamic securities, Islamic unit trusts, and even Islamic real estate investment trusts. Thus, the Malaysian experience has been used to inform the majority of efforts and strategies in the formulation of industrial policy.

Islamic Finance - Islamic financial services industry are governed and regulated (IFSI)
A sound and stable system is typically what the IFSI's regulation and governance are intended to achieve through efficient market discipline, disclosure, and oversight. Each financial system's structure is governed by relevant financial legislation and licensing standards for distinct institutions. The financial interests and confidence of the financial community are protected by these regulatory requirements, supervisory procedures, reporting requirements, and disclosure requirements. The protection of depositors and defending the rights of owners of investment accounts are crucial in the banking sector for preserving public confidence in the financial system. The existence of investment accounts in Islamic banking has resulted in major modifications to the industry's governance and regulation. The performance, liquidity, and adherence to Shari'ah-compliant standards of Islamic funds, financial instruments, and Islamic-approved equities are concerns of market participants in capital markets, represented by investors.

​The creation of new Shari'ah-compliant instruments and the expansion of Shari'ah compliance standards for stocks are important aspects that have led to the creation of new capital market governance structures and disclosures. The depth and breadth of the financial industry are influenced by the creation and application of appropriate institutional policies of the sovereign nation by financial authorities. The magnitude and scope of Islamic financial instruments' issuance and trading reflect the market's level of acceptance and liquidity. Because there are so many different kinds of products and instruments, it is possible to match investor preferences with product risk profiles.

These regulations are designed to make the financial intermediation process effective and efficient. The availability of funds will also be influenced by monetary policies, such as those governing reserve requirements, open money market transactions, and financing rates, which may adhere to a rigid or flexible monetary policy. The development of Islamic Financial Systems (IFSs) that are adaptable to new goods and instruments of the sector is framed by regulation, which is important. Additionally, regulation guarantees that investors have more options and that a reliable monitoring and reporting system is in place to guarantee the stability and integrity of the system. The IFSI's regulation and governance have undergone recent changes, which have accelerated Islamic banking and the capital market's expansion.

​Islamic Finance - Foreign currency exchanges
Financial institutions should generally execute spot transactions for settlements involving foreign exchange transactions. The simultaneous delivery of both currencies to both parties is required. The transaction will be forward or postponed depending on whether one or both of the currencies are deferred, making it incompatible with Shari'ah rules. If this isn't possible, the next best course of action is to adhere to the industry norm, which allows for a little amount of delay in the reconciliation of settlement. The AAOIFI Shari'ah Standard (number 1), "Trading in Currencies," which permits the set-off for various currencies as long as the exchange is based on the going market rate on the day of the set-off, has made this provision. Even though spot and simultaneous delivery of the currencies to each other is required by Shari'ah principles, a small delay of up to three days in the delivery of these two countervalues is permitted based on market experience.

​Islamic Finance - Systems for paying with checks and insufficient client funds
The circumstance that could develop while dealing with check payment systems is another factor to take into account in a Shari'ah-compliant payment system. An Islamic bank could occasionally come upon a circumstance where the payer doesn't have enough money. Here, the Islamic paying bank has the choice of either rejecting the payment or honoring it by providing the payer with a short-term facility, such as a Qard/Hassan interest-free loan. The kind of contract used for the aforementioned short-term facility governs the fees that the bank may impose; for example, a Qard contract forbids the bank from recovering any further costs for the facility. The bank may be required to pay an administration fee that is proportionate to the actual costs spent

​Islamic Finance - combining traditional and shari'ah-compliant payment and settlement methods 
To prevent the clearance of Islamic and conventional checks from being confused, the question of whether an IFI has to have dual payment and settlement systems in a jurisdiction with a dual-banking structure emerges. The separation of the payment and settlement systems is not required from a Shari'ah perspective. This is so because the system's purpose is to make it easier to pay who is owed money and deduct money from whom it is owed money. Whether a payment comes from a traditional or an Islamic source, it makes no difference to the system. Having internally separated transaction and reporting systems is important for banks using dual banking systems or windows.

Consider Malaysia's dual banking system as an illustration. Here, in order to expedite check-clearing operations, Islamic banks and conventional banks with window services are required to keep a Wadiah current account with Bank Negara Malaysia (BNM). The aforementioned banks are required to give BNM the authority to square their financing position during the automated check-clearing procedure in accordance with the Al-Wakalah principle. If a deficit develops, BNM will use Islamic securities and documents to fund the deficit bank through a "repurchase agreement (repo)-like" facility. Islamic banks have previously deposited at BNM Islamic securities/papers (typically produced by BNM). The deficit bank will sell the securities or papers to BNM when the deficit develops, and BNM will then use the proceeds to balance the deficit bank's position. When a price has been reached, the erstwhile deficit bank will repurchase the identical securities/papers from BNM and deposit them back there. Every time a shortfall is triggered, the same procedure will be carried out again.

​Islamic Finance - Payment methods that adhere to sharia
A Shari'ah-compliant payment system has similar principles and objectives to the above-mentioned conventional system. However, a number of operational adjustments must be made to guarantee that Shari'ah principles are properly upheld. AAOIFI has addressed the traditional check-based clearance mechanism for debt settlement. Following the set-off or Muqasah concept, which is described in Shari'ah Standard (no 4) on the settlement of debt by set-off, has solved this (Muqasah).
A set-off is the cancellation of a debt payable in comparison to a debt receivable. It comes in two different categories:
A. Mandatory set-off occurs without the necessity for bilateral consent or the agreement of both parties to the debt; each party should be both a creditor and a debtor to the other at the same time.
B. A contractual set-off is the extinguishment of two debts with the agreement of the two parties; each party must be both a creditor and a debtor to the other at the same time, and the two parties must agree to the set-off.
A bilateral pledge exchange is intended to end a set-off in the future. It is acceptable for the institution to exchange bilateral commitments stipulating that any future debts incurred between them shall be paid off via set-off. If the two debts have different currencies, a bilateral exchange of a promise of set-off should be reached with the understanding that the actual set-off will be based on the exchange rate in effect at the time. These techniques are designed to prevent the accrued interest-based debt that results from a traditional payment system.

​Islamic Finance - Fundamentals of Conventional  Payment Systems
The Bank for International Settlement (BIS) has established the following key principles for payment systems to accomplish the aforementioned:
 -the system should have a solid legal foundation across all pertinent countries
-The system should have clearly defined processes for the management of credit risks. 
-The rules and procedures of the system should enable participants to have a clear awareness of the impact of that system on each financial risk they incur by participating in it
- The system should offer prompt final settlement on the day of value at the current value or market rate, preferably during the day and at the very least at the end of the day. 
 A system where multilateral netting is used should, at the very least, be able to guarantee the timely completion of daily settlements in the event that the participant with the largest single settlement obligation is unable to settle.
-Where alternative assets are utilized, they should bear little to no credit risk and little to no liquidity risk. Preferably, assets used for settlement should be claims against the central bank. 
 The system should guarantee a high level of security and operational dependability, and it should have backup plans in place to ensure that daily processing is completed on time. 
 The system should offer a method of making payments that is convenient for its users and effective for the economy.
The system's governance mechanisms should be efficient, responsible, and transparent. 
 The system should include objective and publicly revealed criteria for participation, allowing fair and open access.