Treasury reclassifies sukuk under new regime

HM Treasury, the UK Government’s finance ministry, brought sukuk and similar instruments within the scope of UK financial regulation. In this article, Robert Finney and Matthew Sapte of Denton Wilde Sapte LLP look at the changes.

Robert Finney and Matthew Sapte are Partners in Denton Wilde Sapte’s Banking Department. Contact them on +44 (0)20 7246 7000 (robert.finney@dentonwildesapte.com or matthew.sapte@dentonwildesapte.com).

Background

The UK Government’s objectives on Islamic finance are to enhance the UK’s competitiveness in financial services by maintaining the UK’s position as a Western leader in international Islamic finance and to ensure that the market has access to competitively priced financial products. FSA has already authorised Islamic banks, and Islamic home finance products fall within the scope of the Financial Services and Markets Act (FSMA). But what the Government refers to as Alternative Finance Investment Bonds (AFIBs), in particular sukuk, often have not fallen cleanly within any particular existing category of regulated investment. This has created unfortunate uncertainty in the market, with the regulatory treatment of each new sukuk issue having to be considered carefully on its own merits.