I will come back to this point later… To focus on the matter I was invited to speak about, I would like to address several issues: •  first, the links between the current overhaul of financial regulation and Islamic finance;  •  second, the role Islamic finance could play in France;  •  the third, the relationship between Islamic finance and financial stability;  •  Finally, I would like to mention the conditions Islamic banks need to meet to ensure that their establishment in France is consistent with the smooth functioning of the banking system. ♦♦♦  The current crisis has illustrated the rapid contagion effect fostered by financial globalisation. However, it is important to emphasise that financial globalisation is not in itself the cause of the crisis, which has rather revealed failures in financial regulation. Indeed, the crisis has highlighted the need to better assess and prevent risks in the financial system as a whole, in addition to simply monitoring the risks of each individual institution. It has also shown that some features of the regulatory regime have had an amplifying effect on the economic cycle instead of mitigating it. That is why the G20 has launched an ambitious agenda to reform financial regulation, covering four main areas: the strengthening of prudential standards, the redefinition of the scope of regulation, the revision of accounting standards and the strengthening of risk management.
We will see later that these areas find a strong echo in Islamic finance, which has also to deal with issues linked to lack of transparency, of a level playing field and harmonised regulation. Thus, the overhaul of regulation in conventional finance should be an opportunity for Islamic finance to tackle these issues, and to better integrate into financial globalisation. In France, in particular, Islamic finance has a role to play, which could be beneficial both to Islamic investors and to the French economy. Indeed, the French economy offers major and diversified investment opportunities for Islamic investors in the financing of a wide network of often innovative firms and projects, or in real estate. These sovereign funds, corporates or wealthy individuals should have the opportunity to invest, either directly in individual assets or projects, or indirectly through funds or  BIS Review 118/2009  1  collective vehicles. It is up to banks to offer to these investors the type of Shariah compliant products and investment or financing tools they might wish to have. Let me make a brief point on sovereign wealth funds (SWFs) and their link with Islamic finance. SWFs have attracted much attention recently but the oldest ones were set up back in the 1970s. Their expansion accelerated about a decade ago, when many emerging countries started to accumulate sizeable foreign exchange reserves, due to high oil and gas prices and to the conjunction of macroeconomic factors and foreign exchange policies.