Australia looks to UK for Shariah banking guidelines

By Habhajan Singh
The success of Islamic banking and finance practice under the existing legal and regulatory environment in the United Kingdom and its growth globally is enough reason for Australia to follow-suit, argued a Sydneybased academician.
It is most important that consideration be given to the adoption of the UK model of regulatory framework for Islamic banking and finance into Australia, said Abu Umar Faruq Ahmad, a senior lecturer from Sule College in a recent paper at an international Islamic finance conference.
"In this regard, regulations are needed to be developed by the Australian regulatory regime so as to make Islamic finance a viable alternative system of financing for Muslims in Australia," he said in a paper co-authored with Muhammad Fazlul Karim from Multimedia University (MMU).
The paper, entitled "Legal and regulatory issues in Islamic finance industry: The evidence from UK and Australia" was presented at the Sixth International Islamic Finance Conference 2008 organised by Monash University in October.
In the paper, the authors said that Islamic finance in Australia has been growing rapidly since it was first introduced in 1989 with the Muslim Community Co-operative (Australia) Ltd, better known as MCCA. Since then, a number of Islamic financial services providers have come into existence in the Australian financial services market during the past decade and some international financial institutions are also considering the introduction of Islamic banking branches and subsidiaries.
"No formal legal and regulatory framework or infrastructure in existence in Australia for guiding and supervising the functions of Islamic financial institutions operate in line with the precepts of Shariah.
"The legal and regulatory framework of the financial sector in Australia unlike in the UK consists of a multiplicity of bodies," they said.
These include the Reserve Bank of Australia (RBA), Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). The coordinating body for these agencies is the Council of Financial Regulators. The paper noted that under Australia's subsection 9(3) of the Banking Act 1959, an authority to carry on all kinds of banking business in Australia was granted by APRA to the then Muslim Community Credit Union Ltd (MCCU) in December 1999.
It also noted that Australia’s new community banks (which have emerged largely due to the closure of traditional branches in smaller towns and funded and operated by local townspeople), and community-based Islamic co-operative financial institutions were registered and given licences to carry on cooperative businesses under the Cooperatives Act 1992.
"Although Islamic finance is different from conventional one in terms of its missions, objectives and practice the operation of Islamic financial institutions in Australia is still subject to basically the same laws and regulations as their conventional peers, and apply the same conventional interestbased framework for regulatory and supervisory activities," they said.
Like the Financial Services Authority (FSA) in the UK, they argued that a uniform regulatory and legal framework supportive of an Islamic financial system has not yet been developed in Australia.