Elementos para la evaluación formativa

This sub-section attempts to explore the second research question, how does the adequacy of legal regulations by the Central bank of Malaysia in the case of non-

Shariah compliant events ensure the IFIs prevent any rises of anti-money laundering activities.

From the previous literature reviews, it can be seen that Malaysia has dual legal framework applied to govern IFIs and other conventional banks separately (Yaacob et al., 2011; Sadiq and Black, 2012). IFIs in Malaysia are governed by IFSA 2013 and the central bank of Malaysia, BNM, the sole industry regulator that is authorised by the government to issue guidelines to manage and protect the industry players. Hence IFIs must comply with country legal framework (Alharbi, 2015) and opinions of the appointed Shariah boards as Islamic experts (Mizushima, 2014). However, given the strong regulatory framework, many legal cases related to non-Shariah transactions are still continuing to occur before the court proceedings. Hence, this section covers the applicable laws and policies regulating the IFIs in Malaysia from the aspects of the central bank as the regulator. From this section, the researcher could explore any regulations governing non-Shariah compliant income and its purification process. Table 19.0 illustrates the perspectives of Shariah personnel towards the legal and regulatory framework as well as internal policies of IFIs in Malaysia. Having said that, only 37 out of 38 respondents answered this section while only 36 out of 38 respondents answered the question number 28 and 36.

Table 19.0: Regulatory Frameworks and Internal Policies Questionnaires (Q26-Q31) Percentage Strongly Agree Agree Strongly Disagree Disagree

Q26. A legal framework for Islamic finance reflects the policies adopted by the central bank in regulating and supervising the Islamic finance industry

Answered Question: 37 Skipped: 1

59.46% 40.54% 0% 0%

Others (Not applicable as a choice of answer)

dual legal framework to govern both the conventional and Islamic finance industry and market

Answered Question: 37 Skipped: 1

Others (Not applicable as a choice of answer)

Q28. The Central Bank of Malaysia has issued a sufficient guideline or regulation in dealing with or reporting of non-Shariah compliant income. Answered Question: 36

Skipped: 2

47.22% 47.22% 0% 5.56% Others (Not applicable as a choice of answer)

Q29. All Islamic banks in Malaysia must comply with existing Central Bank regulations in relation to non- Shariah compliant income.

Answered Question: 37 Skipped: 1

83.78% 16.22% 0% 0%

Others (Not applicable as a choice of answer)

Q30. All Islamic banks are required by the Central bank in Malaysia to disclose and report non-Shariah compliant income in its annual report. Answered Question: 37

Skipped: 1

70.27% 24.32% 0% 5.41% Others (Not applicable as a choice of answer)

Q31. Based on the question above, have your IFIs disclosed non-Shariah compliant income in your annual report? Answered Question: 36 YES – 86.11% NO – 13.89% *Close-ended

question with YES or NO as choice of answers.

Skipped: 2 answer)

Table 19 Regulatory Frameworks and Internal Policies

The result in Table 19.0 depicts that the respondents anonymously agree that the IFIs must comply with all regulations imposed by the central bank. However, 10.82% of the respondents do not agree with the statement that Malaysia has implemented a dual legal framework to govern both the conventional and Islamic finance industry and market which has been enacted and gazetted as the FSA 2013 and IFSA 2013 that came into force on the 30th _{of June 2013. Amongst the key feature of enactment of} IFSA 2013 is to provide clarity on Shariah compliance and governance in the Islamic financial sector5_.

Table 20.0 demonstrates the consistent understanding of Shariah personnel towards the legal framework of IFIs in Malaysia. None of the respondents opposed the function of the Central bank to issue any policy in relation to the Islamic banking industry.

Table 20.0 Cross-tabulation of group respondents – Relationship between the Understanding of the Legal Framework of IFIs in Malaysia

Sum of Respondents A legal framework for Islamic finance reflects the policies adopted by the central bank in regulating and supervising the Islamic finance industry All Islamic banks in Malaysia

must comply with existing Central Bank regulations in relation to non-Shariah compliant income.

Agree Skipped Strongly Agree

Grand Total

Agree 5 1 6

Skipped 1 1

Strongly Agree 10 21 31

Grand Total 15 1 22 38

Table 20 Cross-tabulation of group respondents – Relationship between Understanding on Legal Framework of IFIs in Malaysia

With regards to the disclosure of non-Shariah compliant income in the annual report, about 94% of respondents agree that IFIs are required by the central bank to disclose their non-Shariah compliant income in their financial report. However, about 14% of respondents indicate that their IFIs have not disclosed any actual non-Shariah compliant income in their audited annual reports.

Table 21.0 further endorses inconsistencies among the industry players.

Table 21.0 Cross-tabulation of group respondents – The Relationship between Disclosure Requirements and Expected Disclosure.

Sum of Respondents Based on the question above, have your IFIs disclosed non-Shariah compliant income in your annual report?

All Islamic banks in Malaysia must comply with the existing Central Bank regulations in relation to non-Shariah compliant income.

No Skipped Yes Grand Total

Agree 2 - 4 6

Skipped 1 1

Strongly Agree 3 1 27 31

Grand Total 5 2 31 38

Table 21 Cross-tabulation of group respondents – Relationship between Disclosure Requirement and Expected Disclosure.

In seeking knowledge whether the respondents were capable to answer the above questions, Table 22.0 explains the relationship between the respondents and level of income. Of the response, 16 and 8 respondents who earned more than MYR5,000 and MYR10,000 respectively positively responded that their IFIs disclosed non-Shariah compliant income in their audited financial statement. This result basically provides insight that middle and senior management teams fully adhere to the disclosure requirement.

Table 22.0 Cross-tabulation of group respondents – The Relationship between Expected Disclosure and Level of Income.

Sum of Respondent

Based on the question above, have your IFIs disclosed non-Shariah compliant income in your annual report?

Monthly Income?

No Skipped Yes Grand

Total More than RM20,000 2 2 RM10,001 - RM20,000 1 6 7 RM3000 and below 1 1 2 RM3001 - RM5000 1 6 7 RM5001 - RM10,000 2 2 16 20 Grand Total 5 2 31 38

Table 22 Cross-tabulation of group respondents – Relationship between Expected Disclosure and Level of Income

Furthermore, as can be seen from Table 23.0 below, there is no gender influence in the perception of Shariah personnel towards the understanding of disclosure requirements. Table 23.0 discloses that out of 12 females and 26 male respondents,

about 80% responded positively on the disclosure of non-Shariah compliant income in their annual report.

Table 23.0 The Cross-tabulation of group respondents – The Relationship between Expected Disclosure and Level of Income.

Sum of Respondents

Based on the question above, have your IFIs disclosed non-Shariah compliant income in your annual report?

Gender? No Skipped Yes Grand Total

Female 2 10 12

Male 3 2 21 26

Grand Total 5 2 31 38

Table 23 Cross-tabulation of group respondents – The Relationship between Expected Disclosure and Level of Income

This study presumes that some of the IFIs do not actually disclose non-Shariah compliant income in their annual report despite the majority of the respondents knowing that this is one of the requirements set by the central bank of Malaysia. Therefore, the survey continues to understand and explore industry practices in the next section.

4.2.3 THE DISCLOSURE OF NON-SHARIAH COMPLIANT INCOME IN THE