Regulatory challenges posed by Islamic capital market products and services

This paper explores some of the issues that arise in the regulation of Islamic capital market products and services. As many of the products are distributed to retail clients by Islamic banks and through the Islamic windows of conventional banks, it is also pertinent to deal with the regulation of these institutions, not least because of the distinctive liability and asset structures of Islamic banks. Liquidity and capital adequacy are considered, as well as questions of product information disclosure and transparency. Islamic banks and the Islamic windows of conventional banks offer brokerage facilities for securities trading. How should such facilities be regulated, and are there any unique issues that arise because of the need for shariah compliance? Islamic banks also use Islamic sukuk securities for liquidity management. How does the status of such assets compare with their conventional equivalents? This is likely to become a major issue confronting regulators in the years ahead given the rapid growth of these securities.