The Legal and Regulatory Aspects of Islamic Banking: A Comparative Look at the United Kingdom and Malaysia

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Front Cover The Legal and Regulatory Aspects of Islamic Banking Copyright Page Contents Acknowledgements Table of cases Table of legislation Table of statutory instruments Table of European legislation 1. Introduction 1.1 An overview 1.1.1 Why is the legal aspect important and challenging? 1.1.2 What this book aims to do 1.2 Structure of the book 1.3 A note on terminology and methods 2. The historical and ideological background of Islamic banks 2.1 Introduction Part One: The history and development of Islamic banking 2.2 Islamic banking development: an overview 2.3 Islamic banking in Muslim countries: back to the roots 2.3.1 The role of the religious and political factors 2.3.2 The role of the economic factor (the oil wealth of the Gulf countries) 2.3.3 The economic adoption of the Islamic banking system in Muslim countries 2.4 The growth of Islamic banking in the West: the case of the United Kingdom 2.4.1 The unique financial position of London 2.4.2 The danger of the informal Islamic financial institutions (terrorist finance) 2.4.3 The attraction of oil wealth 2.4.4 Investing and saving the growing wealth of the Muslim minorities 2.4.5 Economic globalisation Part Two: The theoretical foundation of Islamic banking – the religious, economic and ethical aspects 2.5 The ideological background of Islamic banking 2.5.1 Islamic theory of the market, money and economy 2.5.2 The religious justification of Islamic banking: the prohibition of interest 2.5.3 The economic justification of Islamic banking 2.5.4 The ethical dimension of Islamic banking 3. Legal analysis of the English legal system in comparison to the Islamic legal system 3.1 Introduction 3.2 The legal structure of both systems: an overview 3.3 The legal sources of both systems: some basic similarities 3.3.1 The customary origins of the legal rules 3.3.2 The role of the judges (the judicial precedents) 3.3.3 The meaning and role of equity principles in both systems 3.3.4 Legal presumption as an integrated division of both systems 3.4 The role of logic in legal reasoning in both systems 3.4.1 Deductive logic 3.4.2 Legal analogy 3.5 A possible legal interaction between both systems 4. The legal description and classification of Islamic banks under the English law 4.1 Introduction Part One: The legal definition of a ‘bank’ 4.2 The meaning of ‘bank’ under the UK banking legal framework 4.3 The common law definition of a ‘bank’ 4.3.1 The development of the definition of ‘banking business’ 4.3.2 The distinctive characteristics of ‘banking business’ 4.3.3 The elements imposed by the factual circumstances of the business 4.4 The statutory definition of ‘bank’ 4.4.1 The UK dimension 4.4.2 The EU dimension 4.5 The legal status of Islamic banks under the UK banking legal framework 4.5.1 Defining Islamic banks in the light of the English case law 4.5.2 The description of Islamic banks in view of the statute Part Two: Locating Islamic banks in the main banking categories of the UK banking sector 4.6 The main categories in the banking market 4.6.1 Commercial and merchant ‘investment’ banks: the nature of the business 4.6.2 The impact of economic deregulation on the banking sector 4.7 Addressing the position of Islamic banks 5. Islamic banks in practice: the operational aspects of Islamic banking 5.1 Introduction 5.2 The formation of an Islamic bank 5.3 The operations of Islamic banks 5.3.1 Islamic law doctrines of commerce and contracts 5.3.2 The contracts used by Islamic banks: an overview 5.4 The main categories of Islamic banking contract 5.4.1 Intermediation contracts 5.4.2 Transaction contracts 5.5 Legal concerns arising from the finance modes and structure of Islamic banking 5.5.1 Corporate governance of Islamic banks 5.5.2 The lack of an accurate legal frame for Islamic mortgages 5.5.3 Tax law and Islamic banking financial products 5.5.4 The legal binding power of the promise in the case of Murabaha agreement 5.5.5 Islamic banking cases in the English court: the applied law 6. The banking regulatory and supervisory system in the United Kingdom: an overview 6.1 Introduction 6.2 The unique contribution of banks to the economic fabric of society 6.3 The need for banking regulation 6.4 The key rationales for banking regulation 6.4.1 The cardinal role of banks in the economy: the social and ethical aspects 6.4.2 Market imperfections 6.4.3 The intertwined nature of the banking sector 6.4.4 The vulnerable nature of banking business 6.4.5 Systemic risk in the banking sector: the deadly results 6.5 The regulator of the banking sector in the United Kingdom 6.5.1 The transformation to a formalised regulatory system 6.5.2 The unified regulatory system 6.6 The regulator’s objectives and strategy 6.6.1 The regulatory objectives 6.6.2 The techniques of the regulator 6.7 The international aspect of banking regulations 7. The application of Islamic banking under the conventional banking regulation of the United Kingdom: fit or conflict? 7.1 Introduction 7.2 The rationale for regulation in the case of Islamic banks 7.2.1 Islamic banks contribution to the economy 7.2.2 Information asymmetry 7.2.3 The vulnerable nature of Islamic banking business 7.2.4 Islamic banks and systemic risk 7.3 The relationship between Islamic banks and the financial authorities 7.3.1 The Financial Services Authority and Islamic banks 7.3.2 The Bank of England and Islamic banks 7.4 The applicability of the safety-net schemes in the case of Islamic banking 7.4.1 Deposit insurance scheme 7.4.2 Lender of last resort 7.5 The applicability of international banking standards in the context of Islamic banking 7.5.1 Islamic banking and Basel Core Principles for Effective Banking Supervision 7.5.2 Islamic banks and Basel II 8. Islamic banking in Malaysia: the Malaysian case study – a legal analysis 8.1 Why is Malaysia an important case study? 8.2 The Malaysian economy and its financial system: an overview 8.3 An overview of the Malaysian legal system 8.3.1 The evolution of Islam 8.3.2 British colonisation 8.4 Potential differences between Malaysia and the UK in relation to Islamic banking 8.4.1 The evolution of Islamic banking in the Malaysian banking system 8.4.2 The introduction of the Islamic Banking Act 1983 8.5 Some of the lead legal regulatory challenges regarding Islamic banking: the Malaysian approach 8.5.1 Lender of last resort in relation to Islamic banks 8.5.2 Deposit insurance scheme 8.5.3 Corporate governance in an Islamic banking institution 8.5.4 Islamic banking cases in non-Sharia courts: the applied law 9. Concluding remarks 9.1 Locating Islamic law in the English legal system 9.2 The impact of the UK conventional legal framework on Islamic banking 9.2.1 The laws that govern the structure and contracts of Islamic banks 9.2.2 Prudential banking regulation and international banking standards 9.3 Some reflections on the findings 9.3.1 The impact on the prosperity of the Islamic banking sector 9.3.2 The impact on the Islamic nature of this banking sector 9.4 Some reflections on possible future developments Bibliography Index