The Legal and Regulatory Aspects of Islamic Banking

Transcription

1 The Legal and Regulatory Aspects of Islamic Banking A comparative look at the United Kingdom and Malaysia Abdul Karim Aldohni Routledge Taylor & Francis Group LONDON AND NEW YORK

2 Contents Acknowledgements Table of cases Table of legislation Table of statutory instruments Table of European legislation xii xiii xiv xvi xvii 1 Introduction An ovennew Wliy is the legal aspect important and challenging? Wlial this book aims to do Structure of the book A note on terminology and methods 5 2 The historical and ideological background of Islamic banks Introduction 6 Part One: llie history and development of Islamic banking Islamic banking development: an overview Islamic banking in Muslim countries: back to the roots llie role oj the religious and political factors llie role oj the economic factor (the oil wealth of the GulJ countries) llie economic adoption of the. Islamic banking system in Muslim countries Trie growth oj Islamic banking in the West: the case of the United Kingdom The unique financial position oj London The danger oj the informal Islamic financial institutions (terrorist finance) 23

3 viii Contents Vie attraction of oil wealth Investing and saving the growing wealth of the Muslim minorities Economic globalisation 25 Part Two: Tlie theoreticalfoundation of Islamic banking the religious, economic and ethical aspects Tfie ideological background of Islamic banking Islamic theory of the market, money and economy Tlie religious justification of Islamic banking: the prohibition of interest Trie economic justification of Islamic banking Tlie ethical dimension of Islamic banking 35 3 Legal analysis of the English legal system in comparison to the Islamic legal system Introduction Tlie legal structure of both systems: an overview) Trie legal sources oj both systems: some basic similarities Tlie customary origins of the legal rules The role of the judges (the judicial precedents) Tlie meaning and role of equity principles in both systems Legal presumption as an integrated division of both systems 'The role of logic in legal reasoning in both systems Deductive logic Legal analogy A possible legal interaction between both systems 54 4 The legal description and classification of Islamic banks under the English law Introduction 56 Part One: Tlie legal definition of a 'bank' The meaning oj 'bank' under the UK banking legal framework Tlie common law definition oj a 'bank' The development of the definition oj 'banking business' Tlie distinctive characteristics oj 'banking business' T he elements imposed by the factual circumstances of the business 'The statutory definition oj'bank' The UK dimension The EU dimension 63

4 4.5 The legal status of Islamic banks under the UK banking legal framework 64 I Defining Islamic banks in the light of tlie English case law Tlie description of Islamic banks in view of the statute 70 Part Two: Locating Islamic banks in the main banking categories of the UK banking sector Tlie main categories in the banking market Commercial and merchant 'investment' banks: the nature of the business Tlie impact of economic deregulation on the banking sector Addressing the position of Islamic banks 76 Contents ix Islamic banks in practice: the operational aspects of Islamic banking Introduction Hie formation of an Islamic bank Tlie operations of Islamic banks Islamic law doctrines oj commerce and contracts Tlie contracts used by Islamic banks: an overview Tlie mam categories of Islamic banking contract Intermediation contiacts I ransaction contracts Legal concerns arising jrom the finance modes and structure oj Islamic banking Corporate governance of Islamic banks Tlie lack of an accurate legalframe for Islamic mortgages Tax law and Islamic bankingfinancial products The legal binding power of the promise in the case of Murabaha agreement Islamic banking cases in the English court: the applied law 112 The banking regulatory and supervisory system in the United Kingdom: an overview Introduction The unique contribution of banks to the economic fabric of society The need for banking regulation 'The key rationales for banking regulation 125

5 x Contents Tlie cardinal role of banks in the economy: the social and ethical aspects Market imperfections Tlie intertwined nature of the banking sector Tlie vulnerable nature of banking business Systemic risk in the banking sector: t/ie deadly results Tlie regulator of the banking sector in the United Kingdom Tlie transformation to a formalised regulatory system Tlie unified regulatory system 'Tlie regulator's objectives and strategy Tlie regulatory objectives 'Tlie techniques of the regulator Tlie international aspect of banking regulations The application of Islamic banking under the conventional banking regulation of the United Kingdom: fit or conflict? Introduction Tlie rationale, for regulation in tlie case oj Islamic banks Islamic banks contribution to the economy Information asymmetry Tlie vulnerable nature of Islamic banking business Islamic banks and systemic risk The relationship between Islamic banks and thejinancial authorities Tlie Financial Services Authority and Islamic banks Tlie Bank of England and Islamic banks The applicability of the safety-net schemes in the case of Islamic banking Deposit insurance scheme Lender of last resort Tlie applii ability of international banking standards in the context of Islamic banking Islamic banking and Basel Core Principles for Effective Banking Supervision Islamic banks and Basel II Islamic banking in Malaysia: the Malaysian case study a legal analysis Why is Malaysia an important case study? Tlie Malaysian economy and ttsjinancial system: an overview An overview of the Malaysian legal system 186

6 Contents xi Tlie evolution of Islam British colonisation Potential differences between Malaysia and the UK in relation to Islamic banking Tlie evolution of Islamic banking in the Malaysian banking system Tlie introduction of the Islamic Banking Act Some of the lead legal regulatory challenges regarding Islamic banking: the Malaysian approach Lender of last resort in relation to Islamic banks Deposit insurance scheme Corporate governance in an Islamic banking institution Islamic banking cases in non-shana courts: the applied law Concluding remarks Locating Islamic law in the English legal system Tlie impact of the UK conventional legal framework on Islamic banking Tlie laws that govern the structure and contracts of Islamic banks Prudential banking regulation and international banking standards Some reflections on the findings Hie impact on the prosperity of the Islamic banking sector Tlie impact on the Islamic nature of this banking sector Some reflections on possible future developments 217 Bibliography 221 Index Til