GE32103 ISLAMIC BANKING REGULATIONS

INDIVIDUAL ASSIGNMENT QUESTION C

PREPARED BY: NO. 1. NAME NOORAINIE BINTI ENIN

PREPARED FOR: MADAM IDA SHAFINAZ BT. MOHAMED KAMIL

MATRIC NO. BG09110337

Legal Framework for Islamic Capital Market in Malaysia

A characteristic for Islamic financial market is similar to conventional but their instrument develops for the Islamic financial markets are based on Shariah principles. The Islamic capital market is one of the important components of Islamic financial market. Islamic capital to apply Islamic law in the capital market transaction in which the market is free from engagement activities prohibited by Islam and free from elements like usury, gambling and uncertainty (gharar). The Islamic capital market is the market that allows companies and the governments have a long-term capital through financial instruments such as securities that comply with Shariah law. Capital market generally is the place for financial instruments such as stocks and bonds traded companies.

To ensure the development of nation economy improved, there are several provisions act to ensure fairness and smoothness of the business and finance transaction. In Malaysia, laws made by Seri Paduka Baginda Yang di-Pertuan Agong on the advice and consent of the Senate and House of Representatives assembled. Legal Framework that meets the specific regulations for Islamic finance in Malaysia has been created. It is being governed by dedicated legislation like the Islamic Banking Act 1983, the Takaful Act 1984 and the Capital Market Services (CMSA) Act 2007. In Malaysia, Legal framework for Islamic capital market under the Central Bank. Central Bank plays an important role in all capital market institutions. There are two Act under the Central Bank it related to Islamic capital market; Islamic Banking Act 1983 section 36 (A) and Banking & Financial Institutions Act, 1989 (BAFIA). BAFIA was introduced to provide for an integrated supervision of the Malaysian financial system and also to provide the Central Bank with the power to speedily investigate and prosecute, if necessary any illegal activities in an attempt to reduce white-collar crime.

The Malaysian capital market is governed by Capital Markets and Services Act 2007, Securities Industry (Central Depositories Act) 1991, Securities Commission Act 1993, Companies Act 1965, Offshore Companies Act 1990 and Labuan Offshore Securities Industry Act 1995. There is a wide array of Islamic capital market products and services to meet the needs of those who seek to invest in compliance with shariah principles. These include shariah compliant stocks, Islamic bonds, Islamic funds and Islamic risk management products. In Malaysia, the initial efforts to provide a list of shariah compliant stocks were undertaken by Bank Islam Malaysian Bhd in 1983.this was later followed by the introduction of a list shariah compliant stocks in June 1997 by the Securities Commission of Malaysia. The implementation of a process to identify shariah compliant stocks facilities the establishment of Islamic indices.

Securities Commission is established under the Securities Industry Act 1993. Securities Commission Act 1993 was establish in March 1993, as the single regulatory body to promote the development of the capital market, in particular to rationalise securities market regulations. Securities Commission is also responsible under the law to encourage and promote the development of the securities and futures markets in Malaysia. Securities Commission is also a

governing body or supervisor of the capital market which was created to ensure the capital market and the rights of market participants. Securities Commission Act 1993 is very important for the control of any fraudulent activities and enhances the protection of the interests of investors. It is a statutory body charged with the power of self-investigation and development of capital markets in a systematic manner with the primary responsibility to protect investors.

The Securities Commission has established the Shariah Advisory Council (SAC) under the Securities Commission Act 1993 (Act 498). Section 16 of this Act was to give full effect to the SC to do something appropriate in carrying out his duties according to laws. Then section 18, Act 498 states that the Securities Commission is empowered to set up a committee to help carry out the task based on the Act. In addition, the Securities Commission also allowed appointing any person any person eligible for membership of the committee. Members of the SAC are qualified individuals, who can present shariah opinions and have vast experience in the application of shariah, particular in the areas of Islamic economics and finance. In line with the Securities Commission as the sole regulatory body in Malaysia, SAC established according to the powers the Securities Commission under the 1993 Commission to create harmony in determining the decisions of shariah law on the capital market. SAC also formed a single reference in shariah-related matters for the Islamic capital market. This is because SAC was given the responsibility to advise the Securities Commission on all matters relating to the development of a comprehensive Islamic capital market. SAC is also a reference point for all issues related to Islamic capital market. SAC also approves the principles for different products for Islamic capital market product.

Islamic capital market has proven to be able to contribute in meeting the capital requirements through the financial instruments offered by investors. Islamic capital market plays an important role in mobilizing funds in the Islamic capital market. Capital it can mobilize the existence of efficient capital from surplus funds to the needy. This can occur directly in a manner that requires the fund to sell securities to individual investors or indirectly upon the capital needed to raise capital through the financial management of institutions.

Reference Ngadimon, M. N. (2009). Peranan Majlis Penasihat Syariah Suruhanjaya Sekuriti Malaysia dalam Pembangunan Pasaran Modal Islam Malaysia. Jounal Muamalat.

Salamon, H. (2009). Perkembangan Pasaran Modal Islam dalam Pembangunan Ekonomi Negara. Journal Teknologi.