The mutual recognition agreement between the Securities Commission of Malaysia (SC) and the Dubai Financial Services Authority (DFSA), the first of its kind between two Islamic markets, is a significant milestone which will provide a gateway for Malaysian capital market players into the Middle East market.

SC Chairman, Dato' Zarinah Anwar and DFSA Chief Executive, David Knott signed the agreement, witnessed by the Second Finance Minister of Malaysia, Tan Sri Nor Mohamed Yakcop.

This reciprocal liberalisation between the two Islamic financial centres will enable cross-border marketing and distribution of Islamic funds with minimal regulatory intervention. This will be facilitated by the entry of Malaysia onto the DFSA's Recognised Jurisdiction Notice.

At the same time, Islamic funds that have been registered or notified with the DFSA will have access to Malaysian investors. With this, Malaysian capital market intermediaries will benefit from a gateway to distribute their Islamic products to a fast-growing market while Malaysian investors will have access to a range of Islamic products from DIFC.

Under the agreement, both regulators will work closely in the areas of supervision and enforcement of securities laws to ensure adequate protection for investors.

“By entering into a mutual recognition arrangement, Malaysia and the DIFC are demonstrating our commitment to accelerate the growth of our respective investment management industries through the trading in each other's markets of mutually-recognised investment products,” said Dato' Zarinah.

“The mutual recognition framework will provide many benefits to market participants including lower regulatory cost and an enlarged investor base,” she added.

Dato' Zarinah said this arrangement with the DFSA is also in line with Malaysia 's aspiration to evolve into an international Islamic financial centre.

David Knott said, “The DFSA is delighted that, as a result of this joint initiative, DIFC domestic funds will be the first foreign funds permitted to be sold into Malaysia . This arrangement is a positive step for both jurisdictions, and is intended to facilitate the cross border flow of Islamic capital market products, as envisaged when this initiative was first announced in August 2006”.

“The DFSA is committed to assisting both the DIFC and the DIFX in their objective to promote innovation and growth of Islamic capital markets in the Middle East ,” he added.

This agreement follows an earlier announcement made on 15 August 2006 on the commencement of a joint initiative on regulatory alignment to facilitate Islamic finance transactions between the DIFC and Malaysia , which is now completed.

In August 2006, the SC signed a Memorandum of Understanding with the DFSA to facilitate information exchange, co-operation and consultation. The SC had also recently co-operated with the DFSA on an investigation into fraudulent investment schemes.