The City of London skyline is seen behind a view of the Aylesbury Estate in south London, Britain October 15, 2015. REUTERS/Neil Hall
The City of London skyline is seen behind a view of the Aylesbury Estate in south London, Britain October 15, 2015. REUTERS/Neil Hall

With Brexit moving ahead, how well is London placed as an Islamic financial centre in the years ahead?

Professor Jason Chuah is the foremost legal expert on Islamic financial law in a western context. His scholarship on the way on which Islamic financial products are structured, received and enforced in western jurisdictions such as the UK, has been cited in some of the most important legal research undertaken on the subject in the UK and further afield. In this exclusive interview, he answers some pressing questions about the impact of Brexit on the UK as an Islamic financial centre.

How important is Islamic finance to London as a financial centre?

You would naturally expect an academic to say that ‘importance’ is a difficult term to define. What I would say, though, is that it had been government policy to place London alongside Dubai as an international Islamic financial capital. In more recent times, we have also seen the UK Government issuing an Islamic bond in 2014. A Sukuk issue valued at GBP 200 million maturing on 22 July 2019, was sold to investors. This was the world’s first sovereign Sukuk issued by a non-Islamic country and orders were already totalling around GBP 2.3 billion. In 2015, the UK also guaranteed, again for the first time, a Sukuk bond issued by Emirates Airlines. The guarantee was for a 10-year $913m issue. By any measure, that is the largest guarantee in the aviation sector by any export credit agency. Of course, relatively speaking, Islamic finance in general is still a small, but healthily growing, corner of the larger international finance tapestry.

Does Brexit mean London will suffer as an emerging Islamic financial centre?

Under EU law, an authorisation by a member state given to a financial service provider to operate in that country will normally be also recognised in other member states. This is known as “passporting”. The question, therefore, is how important this passporting privilege is to Islamic finance providers. I do not think that Brexit will necessarily be a deterrent to Islamic financial institutions looking to internationalise their client and investor base. In terms of deposit taking, the majority of Islamic banks do not take deposits outside their home countries. Brexit is therefore not likely to be an issue for deposit taking. As to attracting investors, there is no need to be established in the EU to draw inward investments. The EU is not a homogenous market as far as Islamic finance is concerned. Islamic finance providers know the different advantages in the different Member States and pitch their business accordingly. Luxembourg, for example, already is one of the largest non-Islamic countries of domicile for Islamic investment funds. But it does not have the kind of corporate and real property advantages that the UK has. One of the important advantages held by the UK is the presence of a well-established legal system for dealing with financial contracts whether they are for Islamic or conventional finance. There are important factors for the Islamic finance provider. The UK has a tax and legal environment which is highly…