We are not a threat, says UK regulator

THE Financial Services Authority (FSA), United Kingdom's single financial regulator, does not view its emergence in the area of Islamic finance as a threat to Malaysia's own ambition to become an international hub for the sector.

Each financial centre has its role to play, especially in these formative years of the Islamic finance industry, said Michael Ainley, FSA's head of wholesale and investment firms.

"This is an emerging industry and the growth of Islamic finance across different regions around the world will only help strengthen the industry and enhance its credibility," he told The Malaysian Reserve in an email interview. Ainley, one of the authors of an FSA document entitled Islamic Finance in the UK: Regulation and Challenges, was asked to comment on the view of some quarters that the UK's entry into the sphere of Islamic finance was a threat to Malaysia's aims to become an international hub for Islamic finance On this score, he said.

Malaysia has established expertise in the field and other centres around the world have much to learn from the experiences, noting that the dynamics in each centre is unique and each has something different to offer.

London took a step further in its push to become the leading western financial centre for Islamic banking with the launch last Tuesday of the fifth Islamic bank with a UK licence, reported the Financial Times on April 22.

The report added that Britain is the only European Union country to have licensed Islamic banks. It also sees the development of Islamic finance as a way of building bridges with the two million Muslims who live in the UK.

The UK is also poised to be the first western government to consider floating a sukuk to enable it to attract wealthy Middle Eastern businesses. Last November, the UK Treasury released a consultation document "to seek views on the potential for the government to become an issuer of sterling Islamic financial instruments."

The document noted that in April 2007, the then Economic Secretary to the Treasury announced that the Treasury and the Debt Management Office would carry out the study.

It said the objectives of potential issuance were set out by the then Economic Secretary, when he said: "We are determined to do everything we can to deliver greater opportunities for British Muslims — and also to entrench London as a leading centre for Islamic finance in the world."

Meanwhile, Malaysia is already at the forefront as the world's largest sukuk market with RM213 billion (68.9%) of the global oustanding sukuk as at end-2007 originating from the country.

In its 2007 annual report, Bank Negara Malaysia said total issuances of corporate sukuk in Malaysia amounted to more than RM30 billion last year.

(By Habhajan Singh, The Malaysian Reserve, April 28, 2008)