The Regulation of Islamic Finance in the United Kingdom
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چکیده
This article examines the unique risks associated with Islamic financial institutions and the secular state’s reticence to directly regulate their religious dimension. It argues that the state’s method of regulating the Islamic financial industry ignores special reputational risks associated with the religious and cultural distinctiveness of Islamic banks. The Financial Services Authority (FSA), the body responsible for the authorisation and regulation of all financial services in the United Kingdom, applies conventional regulatory criteria and product definitions in authorising Islamic financial institutions. Yet these banks differentiate themselves from their conventional peers in that they house so-called Sharia supervisory boards. Sharia boards’ principal remit is to audit products and services for their compatibility with Islamic principles, which developed over the course of centuries of Islamic jurisprudence. Products that comply with such principles earn the ‘Islamic’ label, which is crucial to their uptake by Muslim investors. Therefore, Sharia boards’ direct responsibility for the religious interests of Muslim consumers creates a unique reputational risk in such institutions insofar as banks found to have contravened the Sharia may trigger a lack of confidence in them. The article proceeds in highlighting these issues by first addressing the current state of Islamic finance in the UK and the government’s objectives in creating an Islamic financial centre. Second, the government’s modus operandi in facilitating and regulating Islamic finance is scrutinised with respect to the
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