Legal and regulatory issues in Islamic finance

Legal and regulatory issues in Islamic finance Rodney Wilson UCD Sutherland School of Law, Dublin 14th May 2015 Contents Islamic finance in Ireland Comparative legal experiences Malaysia, Gulf Cooperation Council, UK Legal systems Religious law and Shariah governance Common law, civil law and Shariah Shariah

compliant asset management Islamic funds An Islamic finance strategy Islamic finance in Ireland Main areas of activity Islamic funds first established over a decade ago in Ireland Sukuk issuance since 2005 Legal and regulatory framework Amendments in Finance Bills of 2009 and 2010 to facilitate Islamic finance

Level playing field in tax treatment Regulation Ireland by Central Bank of Comparative legal experiences Malaysia Islamic banking and takaful legislation in 1983-84 Islamic Financial Services Act, 2013 Gulf Cooperation Council Amendment to banking act in Kuwait in 2003 to cover Islamic banking Legal provision in UAE since 1980s

Special Islamic finance regulation in Qatar and Bahrain United Kingdom UK Finance Acts provision for more equitable tax treatment for Islamic finance Legal systems Religious law Shariah based on the Quran, the hadith and the fatwa of Islamic scholars Constitutional provision for Islam in most Muslim majority countries In Ireland constitution refers to Christian values not a secular state

Commercial contracts Litigation dealt with by state courts, not Shariah courts, in Muslim majority states Irish courts could deal with disputes between the parties to Islamic financial contracts Shariah governance of financial institutions Role of Shariah boards Vet Islamic financial contracts Eliminate riba and gharar Scrutinize contracts for risk sharing Status

of Shariah boards Members nominated by boards of directors Approved by AGM Privatization or nationalization of Shariah Criteria for appointment and remuneration Common law, civil law and Shariah Common law jurisdictions English speaking world Pakistan, Bangladesh and Malaysia plus DIFC and QFC Civil law jurisdictions

Continental Europe, the Arab World and Indonesia Compatibility of Shariah with common law Challenges to Shariah board rulings unlikely Provision for trusts used as SPVs Shariah compliant asset management Islamic investment companies Invest in listed and private equity Exposure to residential and commercial property Companies

versus Islamic banks Banks subject to stringent regulatory reporting, capital and liquidity requirements European Islamic Investment Bank has given up its banking license recently Al Baraka precedent for this in London in 1990 Islamic funds Screening criteria Financial screens restricting leverage Sector screens prohibiting investment in companies involved in alcohol production and distribution or gambling activities Parallels

with ethical or SRI funds Islamic funds more reactive than pro-active Tax advantages of Ireland for funds Exemption from taxes on dividends and capital gains as well as transfer taxes such as stamp duties An Islamic finance strategy Long term commitment Not just responding opportunistically Promotion of Ireland because of its experience in UCITS administration and its

skill base in fund management Increasing Irelands international profile Join the Islamic Financial Services Board as an Associate Member following precedent of Luxembourg Send delegates to Islamic asset management conferences in Dubai and Kuala Lumpur