The Islamic financial institutions are developed on the basis of Shariah laws, which are under the guidelines of the Islamic principles. It is important to know that Shariah laws come with so many restrictions and prohibitions, which may not be found in any other financial system. Like paying interest or receiving interest, which is called Riba in Islamic financial terms, is totally prohibited in Islam. Islamic establishments under the legal and regulatory environment focus to deal with the civil law specific penalties and there is the focus on criminal justice as well. In the aspects of sharia, the legal system has own rules and regulations; and there some specific goal for Islamist movements. So, Islamic financial institutions cannot deal in those financial activities, which have any kind of interest in it. The gambling is also prohibited in the Islamic finance along with restrictions on involving in the businesses which are deemed haram in Islam, like alcohol business, pork, as well as pornography. So, Islamic financial institutions cannot indulge in above mentioned activities, and their legal as well as regulatory framework has to make sure that all of these things are avoided on all levels. If any institution is not able to follow these Shariah principles, then they cannot be considered fully Islamic financial institutions. All the legal requirements of these institutions will take the leads from Islamic principles, given by Quran, the holy book of Islam. Every jurisdiction for these institutions must adhere to Shariah laws (Perves, 2015)

            There are establishments under the legal and regulatory setting recognize as the sharia, and there are benefits for the Islamic population and more laws governing punishment. The regulatory environment of Islamic financial institutions is totally different from the institutions, which are based on conventional financial system. The conventional institutions like conventional banks are regulated by laws, which are different from the Islamic Sharia laws, like conventional system does have interest based system in every jurisdiction. Moreover, it is also important to understand that jurisdiction for these institutions are also based on the fact that how a country wants to deal with it. An Islamic country following Islamic principles may run a dual system, where conventional system has different legal framework, whereas Islamic institutions are handled by a different regulatory framework. The good example of such system is Malaysia, where dual system is running. But there can also be countries, where a single system is used to manage both conventional and Islamic financial institutions, but Islamic institutions are given the freedom to manage various aspects on the basis of Sharia laws, but overall system will be under the conventional system. It is important to understand that in current regulatory environment, the legal framework needs to be revisited as a whole for all kind of Islamic financial institutions, because they are very different in nature, and they need a separate system to be managed fully as per the Islamic principles (Alhabshi, 2016)

References of What is legal and regulatory environment of Islamic Financial Institution (IIFS)? Discuss and explain the implications of this regulatory environment on the present regulatory framework by giving some practical examples from some jurisdictions?

Alhabshi, Dr. Syed Musa. 2016. Governing Islamic financial institutions. Accessed October 23, 2018. https://www.nst.com.my/news/2016/05/142912/governing-islamic-financial-institutions.

Almohana, Mohammad. 2017. Legal Risks Faced By Investors in Dealing with Islamic Financial Transactions and Mitigation Actions/Strategies to Keep Off Legal Risks: The Case of Murabaha Transaction. University of Exeter.

Perves, Mohammad Masud. 2015. "Legal and Regulatory Framework in Islamic Banking System:." European Journal of Business and Management (IISTE) 7 (21).

Zandi, Gholamreza. 2012. "Some issues on Murabahah practices in Iran and Malaysian Islamic banks." African journal of business management 6 (24).