ACCA: ‘Need to ensure level playing field for Shariah banking’

By Habhajan Singh
While it is not possible for United Kingdom (UK) regulation to distinguish Islamic finance from other forms of banking on a non-secular basis, there is a need to ensure a level playing field as far as possible. This was one of the pointers highlighted by Association of Chartered Certified Accountants (ACCA) president Richard Aitken-Davies during a recent breakfast meeting he hosted in London with some players from the Islamic finance sector.
He also noted that Islamic banks are not a panacea as they are increasingly beginning to feel the effects of the slowdown, due to the interconnection with the global financial system.
The discussion also touched on the role Islamic finance could play in helping in the current credit crisis. It revolved round a recent ACCA paper — "Islamic Finance: An Ethical Alternative to Conventional Finance?" — which explores the basic tenets of Islamic finance, the role of the UK in leading its development and whether it is a serious alternative to conventional finance.
"Once seen as a marginal industry by some, Islamic finance is now recognised as a vital and thriving market. "It has been widely acclaimed as the fastest growing sector within the world of finance and positions itself as an alternative model," Aitken-Davies wrote on his blog.
"Some suggest much of the current problems might have been avoided in an Islamic system (for example, because short selling and derivatives are generally prohibited).
"Advocates of this view point to the fact that funds adhering to Islamic (Shariah) investment principles have so far avoided the worst effects of the credit crisis," he added.
In November 2007, UK's Financial Services Authority (FSA), UK's single financial regulator, produced a paper entitled "Islamic Finance in the UK: Regulation and Challenges", setting out FSA's role in the development of the UK as the major European financial centre for Islamic financial products and services.
In the paper, it noted that UK's tax and legislative framework is becoming favourably inclined to Islamic financing, establishing a level playing field for a variety of Islamic products such as mortgages, bonds and insurance.
It also said it believes that these could lead to the availability of new retail products, the expansion of wealth and asset management services and the development of sukuk and other wholesale markets.
"Although we cannot promote Islamic finance (or any other particular kind of finance), we can give a clear regulatory framework which is flexible enough to adapt to changes in the market.
"We are keen to see the industry expand, although we recognise this will bring new regulatory challenges," the paper noted.
Since ACCA student, and members live in countries with a thriving Islamic finance market in the Middle East, Malaysia and Pakistan, he said it was keen to play its part in increasing the understanding and development of this sector. During the discussion, he also noted the the need to raise awareness of the principles of Islamic finance, with particular emphasis on the embedded principles of ethics and social responsibility.
"Further development of Islamic finance will require a wider range of products to stimulate competition and provide the best service to the public," he said.
(The Malaysian Reserve, Dec 15, 2008, p32, by Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)Any source