📖 Book Chapter ▼




1. Bank Negara Malaysia (BNM)

BNM is the primary regulator for Islamic financial institutions in Malaysia. Its key governance tool is the Shariah Governance Framework (SGF), which ensures that all operations are Shariah-compliant.


Shariah Governance Framework (SGF) Sections:


  • Section (I): General Requirements – Outlines the foundational rules for establishing a governance structure.
  • Section (II): Oversight, Accountability & Responsibility – Defines the roles of the Board of Directors and the Shariah Committee in ensuring compliance.
  • Section (III): Independence – Ensures that the Shariah Committee can make objective decisions without undue influence from management.
  • Section (IV): Competency – Requires members to have appropriate qualifications and expertise in Shariah and finance.
  • Section (V): Confidentiality & Consistency – Mandates that sensitive information is protected and that Shariah rulings remain consistent.


Key Distinctions:


Shariah Review vs. Shariah Audit: The Review is a continuous process to ensure daily operations follow guidelines, while the Audit is a periodic, independent examination of the effectiveness of the entire compliance system.


2. International Regulatory Bodies

While BNM governs Malaysia, two international bodies set global standards:


IFSB (Islamic Financial Services Board):


  • Focuses on the stability and soundness of the Islamic financial services industry.
  • IFSB-10: Sets the Guiding Principles on Shariah Governance Systems for institutions offering Islamic financial services.


AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions):


  • Responsible for developing and issuing accounting, auditing, and governance standards specifically for Islamic finance.


3. Islamic Financial Services Act (IFSA) 2013
IFSA 2013 is the legislative framework that provides BNM with the legal power to regulate the industry. It is divided into several key sections:


  • Division 1: Focuses on the legal definitions and the scope of Islamic financial operations.
  • Division 2: Details the operational requirements and the licensing of Islamic banks and takaful operators.
  • Division 3: Covers the enforcement powers of BNM and the penalties for non-compliance with Shariah rulings
Download file resource:



Previous END