A key feature of Islamic banks is their use of Unrestricted Profit Sharing (and Loss Bearing) Investment Accounts (UPSIA) in place of conventional interest-bearing deposits. In the first place, this raises a supervisory issue: UPSIA are, strictly speaking, investment (that is, capital market) products, rather than banking products. Hence, they call for a regulatory and supervisory approach that differs from that applied to banking deposits by banking regulators and supervisors. In addition, UPSIA give rise to particular problems as regards both the regulation and supervision of capital adequacy, and also corporate governance. Moreover, UPSIA do not meet the requirements of the banking regulations in North American and Western European jurisdictions, and this constitutes a significant barrier to their development in those jurisdictions. In the second place, this characteristic of Islamic banks raises a structural issue: if UPSIA were used to raise funds, not by Islamic banks themselves, but by fund management companies associated with them (for example, as subsidiaries or as fellow subsidiaries of a common parent), then not merely would the barrier just mentioned be removed, but the application to UPSIA of more appropriate regulatory and supervisory approaches would be greatly facilitated. Last but not least, the rights of UPSIA holders in a winding-up of an Islamic bank need to be clarified, as (absent misconduct or negligence) they are not creditors of the bank but have an ownership claim to some of the assets held by it. This article sets out in more detail an approach that would permit these benefits to be achieved. In doing so, we highlight the challenges faced by the Islamic Financial Services Board in developing appropriate regulatory and supervisory regimens for capital adequacy and corporate governance in Islamic banks.