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 Shari’ah governance
◦ Common law, civil law and Shari’ah
Shari’ah 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 by Central Bank of Ireland
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
◦ Shari’ah 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 Shari’ah
courts, in Muslim majority states
◦ Irish courts could deal with disputes between the
parties to Islamic financial contracts
Shari’ah governance of financial
institutions

Role of Shari’ah boards
◦ Vet Islamic financial contracts
◦ Eliminate riba and gharar
◦ Scrutinize contracts for risk sharing

Status of Shari’ah boards
◦
◦
◦
◦
Members nominated by boards of directors
Approved by AGM
Privatization or nationalization of Shari’ah
Criteria for appointment and remuneration
Common law, civil law and Shari’ah

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 Shari’ah with common law
◦ Challenges to Shari’ah board rulings unlikely
◦ Provision for trusts used as SPVs
Shari’ah 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 Ireland’s 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