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2021 | OriginalPaper | Buchkapitel

9. Regulating Islamic Finance in the UK: Issues and Possible Solutions

verfasst von : Marizah Minhat, Nazam Dzolkarnaini

Erschienen in: Ethical Discourse in Finance

Verlag: Springer International Publishing

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Abstract

This chapter reveals critical issues and risks in relation to the regulatory strategies for Islamic financial market in the UK. It is argued that improper regulation would expose the Islamic financial market to (1) sharia compliance risk, (2) restrictive practice of Islamic finance ethics, (3) becoming a façade for conventional financial practices and (4) a lack of transparency that raises legal uncertainty and risk. Recognising the distinctive characteristics of Islamic finance, this chapter critically evaluates the existing regulatory strategies and offers suggestions for improvement. It proposes that regulators introduce standardised rules on sharia supervision, facilitate the growth of mudarabah capital as equity capital, and refine accounting and disclosure rules that properly account for murabahah transactions and complex Islamic securities, such as sukuk. This proposal is consistent with the goals of financial regulation to protect consumers and investors as well as to promote financial stability and market efficiency.

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Fußnoten
1
Islamic funds account for 4% and takaful for 2% of global Islamic financial assets (TheCityUK, 2019). These components are not discussed in this chapter due to their negligible presence.
 
2
According to the Rome Convention, a contract could only be governed by the law of a country (European Convention, 1980). Therefore, a contract seeking to incorporate a non-state law or body of principles such as shariah would not be recognised as the applicable law of a contract (Ercanbrack, 2015).
 
3
This first sukuk issuance refers to £200 million ijara-based sukuk with five years to maturity (Aldohni, 2016).
 
4
This includes financing for The Shard, Battersea Power Station regeneration, London Gateway, the Olympic Village, the redevelopment of Chelsea Barracks, and over 6,500 homes in the North West and the Midlands (TheCityUK, 2015).
 
5
Formal sources of shariah are (1) Holy Quran (words of Allah), (2) Sunna (an exemplary mode of conduct), (3) Ijma’ (scholarly consensus), and (4) Qiyas (analogy).
 
6
For the sake of brevity, not all Islamic contracts are considered in this chapter.
 
7
Riba is generally described as an addition to, or increase of, money, goods or other forms of instrument, over and above its original size or the amount lent, which involves the exploitation of the economically weak by strong and resourceful parties (Asad, 1980).
 
8
Qard al hasan and wakala are two other types of contracts used by Islamic banks to raise funds.
 
9
This includes certificates of ownership in leased assets, certificates of ownership of usufructs, musharakah sukuk, mudarabah sukuk, murabahah sukuk, salam sukuk, istisna’a sukuk, muzara’ah sukuk, musaqat sukuk and mugharasah sukuk. For the sake of brevity, not all are discussed.
 
10
Fatwas are shariah opinions given by shariah scholars (Abozaid, 2016).
 
11
A host of arrangements can be viewed as self-regulation with variations in characteristics (Baldwin et al., 2012).
 
12
According to Section 5(2) of the FSMA 2000 (Regulated Activities) Order 2001, ‘deposit’ is a sum of money paid on terms ‘(a) under which it will be repaid, with or without interest or premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it’.
 
14
Also known as ‘Profit Equalisation Reserve’ (PER) (Archer & Karim, 2012).
 
15
In some jurisdictions, the use of profit-smoothing instruments of this kind is prohibited because they are viewed as not shariah compliant (AOSSG, 2010).
 
16
Even the AAOIFI’s independence was questioned when a standard on tawarruq was introduced; this instrument was ruled categorically unlawful by the Fiqh Academy (Abozaid, 2016).
 
17
Please refer to Armour et al. (2016, pp. 61–71) for the goals of financial regulation.
 
18
Although a deposit insurance scheme can help prevent bank runs, its implementation entails a regulatory cost of its own—‘it gives the shareholders and managers of insured banks incentives to engage in excessive risk-taking’ (Macey & O’Hara, 2003, p. 97).
 
19
Our proposal was noted in the Action Points (dated 4 March 2019) of the APPGIF for a follow-up action.
 
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Metadaten
Titel
Regulating Islamic Finance in the UK: Issues and Possible Solutions
verfasst von
Marizah Minhat
Nazam Dzolkarnaini
Copyright-Jahr
2021
DOI
https://doi.org/10.1007/978-3-030-81596-7_9