What about the performance of Islamic finance, as seen through the turmoil of the financial crises, as an aspect that is relevant to convergence in regulatory approaches and the new focus on ethical conduct? Islamic finance was largely unaffected by the global financial crises that began in 2008. I do not claim that Islamic finance is immune to crisis, but rather that its banking system was observed to have lower leverage and higher-quality capital, principally in the form of tier 1 core common equity, as well as significant liquidity buffers.

Islamic banks, for example, typically have 95% of their equity in the form of tier 1 common equity, which is the most loss-absorbent form. These attributes tended to make the industry more resilient to negative shocks. At the Islamic Financial Services Board (IFSB) we noted that the new Basel III capital framework, with its stress on common equity and lower leverage, would move conventional banking and its regulation toward the principles and practices of Islamic finance. This is an aspect of a process of feedback, mutual learning, and convergence in principles and practice between Islamic and conventional finance that is one outcome of the shock of the global crises.

Another aspect of convergence is the adaptation and adoption, through the standards of the IFSB, of the Basel III liquidity framework. Thus, IFSB 16, Guidance Note on Quantitative Aspects of Liquidity Management, which was issued in April this year, provides a framework for Islamic banks to flexibly adjust to both the Liquidity Coverage Ratio and the Net Stable Funding Ratio, which are designed to address the key objective of assuring access to liquidity during stressed market conditions. The possibility, or scope, for flexible adaptation in Islamic banks is the result of the due recognition provided to the sector in the Basel Committee’s own guidelines, itself the result of a dialogue with the IFSB.

The need for stronger balance sheets with high-quality capital and liquidity buffers is one great lesson of the global crises. But there is another lesson: namely, that having a strong balance sheet ex ante may not protect an institution if its conduct is imprudent. Islamic finance was aided by the norms drawn from Sharīʿah principles, reinforced by the presence of Sharīʿah advisory boards within financial institutions. These were key factors that helped to shape the conduct of Islamic banks that was, generally, less imprudent and “exuberant” than their conventional counterparts.

There are of course a range of factors—including the relative absence of robust financial infrastructure—that tend to potentially reduce the resilience of Islamic finance, and serve as a warning toward complacency. On the whole, however, Islamic finance was resilient through the crises. It is for this reason that there is today a heightened interest in the principles of Islamic finance—including its stress on the real economy, ethical practice, and social impact. Thus, on the IFSB website there is a video message from the Managing Director of the International Monetary Fund, Christine Lagarde, on the occasion of the IFSB’s tenth anniversary in 2013, where she calls on IFSB members to help to transform values in the wider world of finance by raising awareness of Islamic finance and its principles, including ethical principles, on which it is based.

Two recent landmark statements that take up this wider approach—one that stresses financial integrity, and also economic inclusion from the conventional perspective—are the speeches given by Christine Lagarde and Mark Carney, the Governor of the Bank of England, at the Conference on Inclusive Capitalism held in London on May 27, 2014. Governor Carney’s speech, Creating a Sense of the Systemic, can be seen as part of a series of developments that further aligns views on the appropriate role of ethics in finance—in both Islamic and conventional finance. The Bank of England’s recent report, Open Forum: Building Real Markets for the Good of the People, takes these ideas further and represents a significant departure from the past in the way it has conceived of the “social” role played by finance, a role requiring a wider perspective on ethics, regulation, and the impact of finance on the economy.

There is much in this report that advocates and practitioners of Islamic finance can find agreement with. These developments underscore the possibilities for a deepening dialogue and convergence in relation to the objectives and role, and the conduct and regulation of the financial sector. The developments I have touched on were preceded by successive rounds of analysis of the global crises and its causes, as well as by influential personal testimony. Thus, at the height of the global financial crises, on October 23 2008, only a few weeks after the collapse of Lehman Brothers, the former Chairman of the US Federal Reserve, Alan Greenspan, provided US Congressional testimony in which he said, "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms."

These words underscore the fact that in the new normal, reliance on self-equilibrating, well-functioning markets, and the self-interested conduct of market participants as of old, no longer suffices. Additional measures are needed to make markets functional and give them social legitimacy in the new environment. The key is the restoration of trust and confidence in the financial system—through a focus on ensuring norms of high-ethical conduct, and new and more robust forms of regulation in which both regulators and market participants acknowledge their responsibility toward the wider public interest.

The proposals in the Bank of England’s Open Forum spell out a fresh regulatory perspective that incorporates this outlook. This outlook is also captured recently by the International Ethics Standard Board for Accountants^® in its 2015 Handbook of the Code of Ethics for Professional Accountants: “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore an accountant’s responsibility is not exclusively to satisfy the individual client or employer.”

In its essence, this is a view that is in accord with the distinguishing principles and precepts of Islamic finance.