116
as well as reassures practitioners that products offered in the UK are consistent with strict
prudential and Shari'ah requirements. Max Taylor, who is the Chairman of IIAL, emphasised that
“The Principles have been designed to deliver certainty to both those operating in the market and,
more importantly, Islamic clients across the world... It is not only a huge opportunity for London to
access new risks, and new markets, but also it has wider implications .” (Reuters, 2018).
Though the new standards are not enforceable as they are industry-level best practices, they
provide good guidance for the Takaful sector in the UK upon which they will base their
negotiations generally. It is not unique to the Islamic insurance sector, as the conventional
insurance sector also adopts industry-driven best practices where model products and
contracts are developed to guide clients and insurers.
Since the early 1980s when the earliest Islamic banks such as Dar Al-Mal-Al-Islami (DMI) were
allowed to open an office in London and later Al-Baraka Bank, the Islamic banks in the UK were
regulated under the same law as conventional banks. There was no special regulatory
framework for Islamic banks as licences were issued to all under the existing laws. Under the
Banking Act 1987, Al-Baraka Bank was issued a licence by The Bank of England to exclusive
Islamic banking services in the UK. Al-Baraka Bank opened two branches in London in 1988 and
1988 respectively and subsequently opened another branch in Birmingham in 1991. Due to
regulatory compliance issues, Al-Baraka Bank had to close its doors and returned its banking
license to BOE in June 1993 even though it continued its operations as an investment company
(Housby, 2013). Furthermore, the United Bank of Kuwait also introduced the Shari'ah-compliant
home financing product branded as manzil, with its branch established in the UK in 1997. It was
initially transacted through a murabahah product, and later in 1999, it introduced the ijarah
(lease) mortgage option (Housby, 2013).
The above early experiments of Islamic financial products and services were made under
prevailing legislation without any specific efforts to provide a level-playing field for both Islamic
banks and their conventional counterparts. However, the UK government later realised the need
to deepen this nascent industry by exploring some legal and regulatory reforms. The main
objectives of this were to promote London as an international financial centre and ensure
financial inclusion domestically. To ensure proper industry-specific policies, laws and
regulations are provided, several consultative bodies were constituted. In 2001, the BOE
established the Islamic Finance Working Group. Similarly, in 2003, the HM Treasury and HM
Revenues and Customs established a Tax Technical Group, and in 2007, the HMTreasury Islamic
Finance Experts Group was established. In 2011, the UK Islamic Finance Secretariat (UKIFS) was
formed, and 2013 witnessed the establishment of the ministerial-led Islamic Finance Task Force
(IFTF) , 2014).
Despite the uncertainties in the Brexit negotiations, the UK had introduced specific reforms in
the legal and regulatory framework for the finance industry to accommodate Islamic finance.
Generally, the facilitative approach has been adopted to allow for a level-playing field for Islamic
finance to ensure financial inclusion through amendments to existing laws. For instance, to