Bank of England joins IFSB Islamic finance body

The Bank of England has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, the second Western regulator to do so after Luxembourg.

The BoE joins as an associate member, the 65th regulatory body to join the Kuala Lumpur-based body, bringing total membership to 189, the IFSB said in a statement.

Britain's government has been keen to make London a centre for Islamic finance. In June of last year it became the first Western country to issue Islamic bonds (sukuk).

The move comes at a key time for Britain's domestic Islamic banks, as the BoE works to grow the number of sharia-compliant assets they can use in their liquidity buffers, with progress expected by the turn of the year.

Currently, sukuk issued by the AAA-rated Islamic Development Bank are the only assets that meet the BoE's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.

The BoE could expand this by allowing use of sukuk issued by sovereigns with lower credit ratings and other non-financial issuers, according to a consultation paper released last year.

Islamic finance follows religious principles such as bans on interest and pure monetary speculation, limiting the range of financial tools that banks can use to manage short-term funding needs.

The IFSB has also admitted the central bank of Kyrgyzstan and the Securities and Exchange Commission of Pakistan as observer members.

The central bank of Kazakhstan has also been upgraded to a full member, becoming the 23rd member of the IFSB Council, its highest governing body.

(Reuters / 09 December 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Bank of England may broaden Islamic liquidity tools

The Bank of England is studying ways to increase the number of sharia-compliant assets that Islamic financial institutions can use in their liquidity buffers, a step towards reducing concentration risks in the sector.

The move comes as part of a broader push to promote London as a top centre for Islamic finance, in the face of growing competition from other centres such as Dubai and Kuala Lumpur.

Currently, sukuk (Islamic bonds) issued by the AAA-rated Islamic Development Bank are the only assets that meet the central bank's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.

These include six full-fledged Islamic banks such as the European Islamic Investment Bank, Bank of Londonand the Middle East and Gatehouse Bank.

In addition to reducing risks, expanding the eligible list could improve growth prospects for the industry and remove a potential entry barrier to the sector, a consultation paper released by the central bank said.

"Recognising only one asset also potentially limits the growth of existing sharia-compliant firms and creates barriers to entry for new sharia-compliant firms due to the difficulties that can be experienced obtaining the asset."

Islamic finance follows religious principles such as bans on interest and pure monetary speculation; this limits the types of financial tools that banks can use to manage their short-term funding needs.

The Bank of England's proposal is in line with the approach of Basel III global banking regulations, which allow sukuk issued by high-rated sovereigns to be included in the liquid assets buffer without a haircut.

This would allow Britain's proposed 200 million pound ($330 million) sovereign sukuk issue to be used, as well as other high-investment grade instruments such as sukuk issued by the Malaysia-based International Islamic Liquidity Management Corp.

Sukuk issued by sovereigns with lower credit ratings and other non-financial issuers could also be eligible, subject to haircuts and caps, the consultation paper said. The consultation will end on April 15 but no date was given for the proposed reform.

Britain first announced plans for a sovereign sukuk issue six years ago but that issue never materialised as the country's Debt Management Office decided the structure was too expensive.

The new proposal is less than a fifth of the size of the original, and is designed to boost London's status rather than to diversify Britain's investor base to a significant degree.

(Arabian Business .Com / 26 March 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com