Evaluation of the UK Islamic Banking System, Challenges and Prospects

Abstract

Under the UK financial law, Islamic banks are treated in the same way as conventional banks-there is no special Islamic banking law, nor is there any provision under the current banking law system for Islamic banks. The Financial Services Authority (FSA), the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) regulate and supervise all financial institutions, and this includes Islamic banks. However, the only official document to mention Islamic banks is a paper issued by Her Majesty’s Treasury, which simply explains Islamic banking rather than setting out any rules or regulations. The UK banking system’s policy is to not favoritise any specific type of financial institution; all institutions are treated equally, without giving Islamic banks a special treatment.The UK government has tried to facilitate and assist Islamic banks with developing and conducting their activities effectively. many obstacles that previously faced Islamic banks in the country have either been removed or at least reduced to some extent.  These efforts have been made to open the gate for Islamic banks to enter the UK banking market and develop their business there. For example, as described in this paper, some changes have been made concerning tax regulation and legislation to help facilitate Islamic banking transactions.  In addition, the Islamic Bank of Britain’s definition of ‘deposit’ has been modified to become more acceptable. Generally speaking, the Islamic banking industry in the UK is managed and organised very well, regardless of there being no special Islamic banking law. However, some issues are still existing and faced by Islamic banks in the UK, such as lack of Islamic banking law, shortage of experts, and lack of transparency. Thus, this paper evaluated and criticised the Islamic banking system of the UK and attempted to find out solutions for all these issues.

Keywords: the United Kingdom, Islamic Banks and Challenges

DOI: 10.7176/PPAR/10-8-04

Publication date:August 31^st 2020