In doing so, it will also contribute towards enriching further the diversity of players and strengthening the institutional infrastructure of the Malaysian Islamic banking system. The continued growth of Islamic finance in Malaysia The international economic and financial environment is expected to remain very challenging with several major economies now in recession and continued uncertainties prevailing in the international financial system. In spite of this, the Asian economies are still growing, albeit at a more modest pace. The dominance of domestic demand and increasing regional economic integration have enhanced the prospects for Asia to sustain a modest pace of growth. In this challenging international financial environment, it is encouraging that Islamic finance has continued to demonstrate its evolution and strong growth. Islamic finance has now become a new vehicle contributing to increasing the financial linkages not only within Asia but also with the rest of the world thereby facilitating cross-border allocation of capital globally. Indeed, a number of international financial centres have recognised Islamic finance as an integral part of their financial system in order to complete the suite of financial products and services being offered, and therefore are actively developing this segment. The Islamic finance industry has not only continued to grow but it has also been able to present a higher level of dynamism. The key indicators of the Islamic banking sector continue to record a progressive pace of development. The Islamic banking assets have expanded by 23% to RM234.9 billion compared with a year ago.
From the regulator’s perspective,  2  BIS central bankers’ speeches  risk culture could be inferred and gauged based on the effective implementation and level of compliance by the risk takers and the frontline staff. To improve risk culture, Board and management must review the incentives and penalties in place and ensure that it is effectively implemented. Among the key questions that Board and management should be asking are; Does the performance management and compensation system reward good behaviour and punish bad behaviour? And how are audit and supervisory issues handled? As you already know, a weak risk culture may lead to staff resorting to “check the box” compliance exercise whilst a strong risk culture will judge the wisdom and decision of looking beyond the profit number and be able to see the medium and long term sustainability. On this note, allow me to share some of the key observations made by Bank Negara Malaysia during the recently completed AML/CFT Thematic Reviews on Banks and Insurance Companies. First, the good news. In general, we observed that there was greater awareness among Board and senior management on ML/TF risks and its potential implication to their reputation. From the AML/CFT policies and framework implemented, there was also shift towards risk-based approach. In most of the institutions reviewed, the management of AML/CFT was no longer viewed solely as a “Compliance” job but more aligned and integrated with the bank’s overall risk management function.