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Outlook
EU passporting
Under the relevant European Union direc- tives, one avenue for financial institutions in the UK, including Islamic ones, to expand is to ‘passport’ their business activities into any one of the European Union member states (and vice versa). Concerted efforts have been made within the European Union
Government initiatives
The government has recently taken impor- tant steps to promote the industry. In April 2007, the Treasury established an ‘Islamic Finance Expert Group’ representing a broad cross-section of opinion from the industry, the City, Muslim organisations and other bodies, including the FSA. The general ob- jective is to advise the government on opportunities to help Islamic finance in the UK. More specifi- cally, as confirmed in the Chancellor’s pre-Budget Report in October 2007, the group is overseeing an official study by the Treasury and the UK Debt Manage- ment Office on the possibility of the UK government issuing a sovereign Sukuk in the wholesale mar- ket.
As to be expected, the study is exam- ining the practical, legal and tax impli- cations of doing so as well as structural issues such as the need for primary legislation. It has al- ready generated a good deal of interest among market par-
to form a single market for financial serv- ices; and UK-authorised institutions may of- fer products throughout the European Union without the need to have separate authori- sation in each member country. This means that Islamic institutions that ‘passport’ would have access to an estimated 15 mil- lion potential customers. The Bank of Lon- don and the Middle East is the first Islamic bank to have taken advantage of a cross- border services passport, which enables it to offer its products and services across all EU member states, without a physical pres- ence in the host country.
ticipants and the government will publish a consultative document later in 2007.
At the same time, the government has asked National Savings and Investments (NS&I) to begin a detailed study on the feasibility of offering Islamic retail products.
This study will cover similar ground to the one on Sukuk, namely looking at the costs and benefits, the range and structure of products that might be offered, and the like- ly demand. NS&I will publish their report by Autumn 2008.
The longer term
Looking further ahead, there is scope to ex- pand the market for Islamic products and services to non-Muslims as well as Muslims. The market is not confined to a particular group of consumers and Islamic finance pro- viders can position their products to appeal more to the much larger non-Muslim popula- tion.
Their success in doing so will in part depend on the ability to demonstrate how the prod- ucts are underpinned by generally accepted ethical principles. If Sharia-compliant prod- ucts are no longer seen as ‘exotic’ or niche products, the industry could benefit from economies of scale which would help to sus- tain it over the longer-term.
Conclusion
The potential for the future growth of Islamic finance, in the retail and wholesale markets, is clear and both the government and the City are actively promoting this objective. London’s emerging role as a hub for Islamic finance is underpinned by the factors out- lined in this paper, in particular, a wide skills base, innovation and flexibility and historical links with the Middle East.
These will remain strong. The government’s tax and legislative framework has estab- lished a level playing field for a variety of Islamic products such as mortgages, bonds and insurance.
This could lead to the availability of new retail products, the expansion of wealth and asset management services and the development of Sukuk and other wholesale markets. The FSA has been, and is, willing to play its part in supporting these developments, within its regulatory powers under FSMA.
Although we cannot promote Islamic finance (or any other particular kind of finance), we can give a clear regulatory framework which is flexible enough to adapt to changes in the market. We are keen to see the industry ex- pand, although we recognise this will bring new regulatory challenges. If there is future growth in this market, it should benefit UK consumers and develop London further as an international financial centre.
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2010 June GlobalIslamic Finance 47
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