National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
172
The first significant political and regulatory support, however, came in 2000 when an Islamic
finance working group was set up under the leadership of Andrew Buxton, former Chairman of
Barclays Bank and Eddie George, then Governor of the Bank of England. Since the formation of
this working group, the UK Government and regulators have attempted, through the addition
of Alternative Finance clauses to various Taxation Acts, to create a market environment where
Islamic banks and their clients are not treated any differently to their conventional
counterparties. For example tax law was amended in order to remove capital gains tax and
double stamp duty for sukuk issuances and Shari’ah -compliant mortgages, and tax
arrangements for sukuk issuances also ensured that returns and income payments would be
treated similarly to interest on conventional bonds (UKTI 2014).
In 2013, the Government launched the UK’s first Islamic Finance Task Force. The Task Force
supported the development of the UK’s Islamic finance sector, helping to increase inward
investment and strengthen the economy. It included senior industry practitioners to ensure
that the UK’s offer is promoted at home and abroad by both the public and private sector (UKTI
2014). In 2015, the Bank of England became a member of the Islamic Financial Services Board.
At the level of financial services regulation, the UK is, like Germany and Luxembourg, a
member of the EU, and therefore very large parts of its financial services regulation are set at
the European level. Following a period of scepticism about Islamic finance, the regulatory
approach has become facilitative but within existing regulation. Thus, for example, profit
sharing investment accounts of Islamic banks are treated as deposits for capital adequacy
purposes and there are no provisions in UK law or regulation for Shari’ah governance in
Islamic finance. This appears partly to reflect a perceived political difficulty in referring to
Shari’ah in any UK legislation. So the legislation to facilitate sukuk refers to them as
“alternative finance investment bonds”50. More recently, the Bank of England has made it
explicit that the UK’s regulatory regime is a secular one and that “as the authorities are
financial rather than religious regulators, the development of Shari’ah compliance standards in
the UK must be market led” (Bank of England 2016).
The UK is nevertheless home to the West’s first fully fledged Shari’ah-compliant retail bank (di
Mauro et. al 2013) and currently has five fully Islamic banks with assets of USD2bn at end
2014. Another 15 banks offer some Islamic products, for example Islamic mortgages
(TheCityUK 2015a). In addition, The European Islamic Investment Bank has its headquarters
in London but despite its name is authorised as an investment firm rather than a bank. A
significant part of these banks’ business is aimed at overseas customers wishing to invest in
Britain, and they have made substantial Shari’ah-compliant investments, particularly in real
estate (TheCityUK 2015a). The Bank of England has continued to establish infrastructure for
Islamic banking, and in particular for liquidity management. In addition to the UK’s sovereign
sukuk issue discussed below, it has now issued a consultation paper on establishing Shari’ah
compliant facilities for deposits with the central bank and for the provision of liquidity by it
(Bank of England 2016)
In June 2014, the government became the first western country to issue sovereign Sukuk (a
few months ahead of Luxembourg). £200 million of Sukuk, maturing on 22 July 2019 were sold
to investors based both in the UK and in the major hubs for Islamic finance around the world
(TheCityUK 2015a). The concept of such an issuance had first been floated in 2007 but plans
50 See, for example, Schedule 2 to the Taxation (International and Other Provisions) Act 2010,
or the Alternative Finance Investment Bonds (Consequential
Amendments) Instrument 2010,