Broadening and Deepening the Islamic Capital Market

The SC continues to chart its strategic direction to drive a broader and deeper ICM, expanding its reach and value proposition. This entails building on initiatives that focuses on developing the Islamic social finance landscape and enabling more diversified Shariah-compliant offerings. This is in line with the SC’s CMP3, where the emphasis is to leverage the ICM to cater to the broader stakeholders of the economy through supporting the sustainable development agenda by enhancing the ICM ecosystem for Islamic social finance.

Shariah governance is also a key focus area for ICM. The SC will continue to undertake initiatives focusing on Shariah governance in various phases, to facilitate the orderly development in shaping a robust ICM products and services ecosystem.

Expansion of Waqf-Featured Fund Framework

Following the introduction of the Waqf-Featured Fund (WQ-FF Framework) for unlisted funds in 2020, the SC had, on 28 November 2022, expanded the framework to include listed funds – Islamic Real Estate Investment Trusts (REITs) and Islamic ETFs, to further grow the Islamic social finance space.

The expanded WQ-FF Framework is expected to broaden the range of innovative ICM products and provide investors with access to Islamic funds that allocate a whole or part of the fund’s return towards socially impactful activities via waqf.

Under the existing WQ-FF Framework introduced in 2020, there are five unit trust funds and one wholesale fund as at end December 2022 with an aggregate NAV of RM46.7 million. The WQ-FF Framework has since promoted greater collaborations between Islamic Fund Management Companies (IFMCs) and State Islamic Religious Councils in broadening the potential of waqf assets in addressing socio-economic welfare, which have been proven to be instrumental for more than 1,400 years.

Enhancing the ICM Information Architecture

Issuance of Guidelines on Islamic Capital Market Products and Servicesnd Services
The SC had, in November 2022, issued the Guidelines on Islamic Capital Market Products and Services (ICMPS Guidelines) which serves as a single point of reference that provides a consolidated and distinctive aggregation of Shariah requirements. The ICMPS Guidelines consolidate all Shariah requirements for ICM products including sukuk, Islamic structured product and Islamic CIS, that were previously cited in the relevant chapters within respective guidelines.

Read more on media release on ‘SC Issues Consolidated Guidelines on Islamic Capital Market Products and Services’.
Revision of Guidelines on Islamic Fund Management
In further ensuring the efforts of distinctive accessibility for Shariah compliance requirements and clear Shariah governance, the Guidelines on Islamic Fund Management had been revised for IFMCs and Islamic windows. Intermediaries will now be able to identify the different sets of requirements between a full-fledged Islamic fund management entity versus activities, respectively.

Spurring Continued Growth of Islamic ECF and P2P financing

Facilitating greater Shariah-compliant ECF and P2P financing offerings
In order to continue facilitating the development of innovative solutions that aim to address the funding needs of MSMEs through alternative fundraising digital platforms, interested parties with capability to operate ECF and P2P financing platforms focusing on Shariahbased solutions and value-propositions were invited to submit their applications.

The registration for new ECF and P2P financing operators with Shariah-based solutions and value proposition, is expected to encourage more solutions for MSMEs seeking market based funding options and promote greater growth of MSMEs in the halal economy while allowing greater access to investments for all participants in the capital market.

Thought Leadership and International Profiling

Facilitating greater Shariah-compliant ECF and P2P financing offerings
With Malaysia as the global leader in Islamic finance, the SC continues to advance the growth of ICM by leveraging its strength. Aligned to CMP3, the core focus areas are sustainable finance, inclusivity, Islamic social finance and fintech.

In sustaining and solidifying global thought leadership, the SC’s efforts are encapsulated through two key platforms – the Royal Award for Islamic Finance (The Royal Award) and the SC – Oxford Centre for Islamic Studies Roundtable (SC-OCIS Roundtable). The former is jointly organised by SC and BNM, under the Malaysia International Islamic Financial Centre (MIFC) initiative, where it recognises individuals and entrepreneurial efforts who have excelled in advancing Islamic finance through longstanding contributions and achievements. Meanwhile, the SC-OCIS Roundtable and the Scholar in Residence (SIR) Fellowship programme, have continued to facilitate, for more than a decade, the developmental agenda of the SC in furthering efforts in growing the breadth and depth of ICM.

This has produced several innovative products and services which aim to generate a positive impact to the economy, community, and environment. This has been exemplified by the issuance of the Sustainable and Responsible Investment (SRI) Sukuk Framework, and the development of the WQ-FF Framework.

For more details on the programmes, kindly refer to Part 4 – Strategic Engagements with Stakeholders.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.