The Legal and Regulatory Aspects of Islamic Banking: A Comparative Look at the United Kingdom and Malaysia * By ABDUL KARIM ALDOHNI

Abstract

As Islamic banking has spread, there has been increasing debate about whether specific laws need to be enacted or whether it can be accommodated within existing legislation with the onus on the regulatory authorities to manage the financial risks and protect bank clients. Malaysia has an Islamic banking law and detailed regulatory provision for Islamic banks. The United Kingdom has no specific Islamic banking legislation, although successive Finance Acts have provided for tax changes to create a level playing field for Islamic banks. This has facilitated London’s emergence as the leading centre for Islamic finance in the West. At first sight it may seem odd to focus on the United Kingdom and Malaysia in a study of Islamic banking rather than the Middle East, and in particular the Gulf, where Islamic banking is most developed. However, both the United Kingdom and Malaysia are English common law jurisdictions whereas in the Middle East civil law prevails. Hence it was sensible for Abdul Karim Aldohni to examine two comparable jurisdictions in this relatively short study rather than taking a wider remit. Most Malaysian banking legislation simply followed the United Kingdom precedent, the basic premises of which were established during the colonial period.