New law will boost protection for depositors.
Malaysia's new Islamic Financial Services Act gives regulators greater oversight of the country Islamic banking market, the world’s second largest, with assets of US$124 billion in May.
The law will make religious advisers legally accountable for financial products, and liable to steep fines and prison time for wrongdoing. The Islamic scholars are hired by banks to assure that financial products abide by Islamic sharia standards.
The new law includes a plan to require Islamic life insurers to separate the life arm from other parts of their business. It could also promote takeovers in the Islamic insurance sector through capital-base provisions that encourage larger participants.
The new law went into effect last week and is seen as a larger effort to enforce closer adherence to sharia laws, where Malaysia is already a global leader.
Previous rules governing sharia compliance were just guidelines. The IFSA elevates them to statutory duties, a breach of which could expose licensed financial entities to punishment.
Penalties will be more severe with many offences carrying a possibility of up to eight years imprisonment and US$7.9 million in fines.
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