Broadening and Deepening the Islamic Capital Market - Strengthening the Sustainability and Competitiveness of the Capital Market

Broadening and Deepening the Islamic Capital Market

The SC remains committed to chart its strategic direction to expand its reach and value proposition, aiming to propel a more inclusive and broader ICM.

In these efforts, the SC is dedicated to facilitate a more diversified Shariah-compliant offerings, amplifying its societal and environmental impact in line with sustainability principles, and strengthening the landscape of Islamic social finance. This is aligned with the SC Capital Market Masterplan 3 (CMP3) where ICM is further leveraged to widen its reach to broader stakeholders of the economy.

The SC will continue to undertake initiatives focusing on Shariah governance in various phases, to facilitate the orderly development in shaping the ICM landscape, while enhancing the country’s global standing position in Islamic finance.

Harnessing the Potential of Waqf

The SC recognises the transformative potential of waqf in addressing critical socio-economic challenges such as poverty, unemployment, and inadequate funding for essential sectors like healthcare, education, and infrastructure. As such, the SC has actively sought to tap into the potential of waqf within the ICM. Efforts include the release of the SC’s first book on waqf in 2014, covering themes on innovation, governance, and opportunities within the ICM. Waqf assets were also incorporated as one eligible projects under the revised SRI Sukuk Framework issued in 2019. The developmental efforts by the SC then extended to enable more diverse market offerings when the SC rolled out the Waqf- Featured Fund Framework (WQ-FF) for unlisted funds in 2020. Subsequently, the WQ-FF was expanded to encompass listed funds including Islamic ETFs and REITs in 2022.

The application of waqf in ICM products, such as Shariahcompliant funds and equities, has demonstrated its ability to generate positive and inclusive social impact for society. In this spirit, the SC facilitated the convening of the first regulator-led Waqf and Islamic Capital Market Conference in July 2023, providing a platform for stakeholders to discuss and propose solutions to unlock waqf’s full potential. Building on the efforts over the past decade, further initiatives are underway to expand waqf’s scale and reach. These include, among others, the continuation of the SC’s annual waqf conference, ongoing engagements with key stakeholders and industry players and the drafting of the second edition of the waqf book.

Special Feature 2

Maqasid Al-Shariah – Islamic Capital Market Malaysia

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.