UK government consults on regulation of Islamic finance

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LONDON - A joint Treasury-Financial Services Authority (FSA) consultation on proposals for the legislative framework for the regulation of alternative finance investment bonds launched on December 11. AFIBs refer to a type of financial instrument commonly known as sukuk or an Islamic bond, but can also refer to any financial instrument with similar characteristics.

"This consultation is an important part of the work Government is doing to support the growth of Islamic finance in the UK and to increase our position as a leading global centre in this market," said Ian Pearson MP, economic secretary to the Treasury. "The Government wants to ensure no-one in the UK is denied access to good financial services on account of their religious beliefs. We value the contribution Islamic finance makes to London's position as an international financial centre and we want to see this sector continue to grow and prosper in this country."

The CP discusses four policy options. Option 1, which is the preferred option, is to introduce legislative amendments to create a new specified instrument under the Regulated Authorities Order (RAO) and to explicitly exempt these instruments from CIS regulations. Option 2 is the same as option 1 but AFIBs will be defined by the existing tax definition; option 3 is the same as option 1 but include AFIBs under the existing specified investment of creating or acknowledging indebtedness; and the final option is to take no action at all.

The consultation will last 12 weeks. Any consequential amendments on the FSA's Handbook as a result of the proposed policy options are not considered in detail in the CP and any changes will be separately consulted on.

As well as the consultation, the UK Government also published a new paper, 'The development of Islamic finance in the UK'. The paper aims to raise awareness of the growing role of Islamic finance in the UK by providing a stock take of achievements to date, as well as examining the remaining barriers to growth.

Click here for a copy of the consultation paper

Click here for the paper

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