MANAMA, 3 March 2003 — Bahrain yesterday presented a plan to improve the overall financial environment for the country to increase its importance as a regional financial hub.
The plan was outlined by Sheikh Ahmad ibn Muhammad Al-Khalifa, governor of the Bahrain Monetary Agency, in his opening speech at the fourth International Banking and Financial Conference here. The meeting is being attended by senior decision-makers representing the world’s major Islamic and conventional financial centers.
The conference — “Adapting to a Rapidly Changing Regulatory and Financial Environment” — was organized by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the World Bank and the Bahrain Monetary Agency, as well as various regional institutions and companies.
Outlining Bahrain’s vision, Sheikh Ahmad said: “The emphasis is initially on improving the stock exchange to make Bahrain the region’s capital market center, expanding the insurance sector for a more coordinated thrust into both GCC markets and the wider Arab world and developing the Islamic financial industry, embracing both conventional and Islamic structured institutions.”
“Recent corporate failures and malpractices, new technology, increased globalization and the convergence of banking, insurance and capital markets have all contributed to creating a challenging regulatory and financial environment with which regulators have come to terms,” Sheikh Ebrahim ibn Khalifa Al-Khalifa, chairman of the AAOIFI Board of Trustees, told Arab News.
He explained that the objective of regulation was to maintain financial stability. This in turn will entail the production and dissemination of timely and reliable market information upon which investors can make sound judgments.
He suggested a three-pillar model for financial regulation. “The first pillar would be ‘Mandatory Capital Requirements’ governed by legally binding rules in proportion to the risks involved. The second would be ‘A Role for Supervision Focused on Risk Control’ backed by supervisory mechanisms such as individual capital and solvency requirements, and shaped to influence different financial institutions. The third pillar would be ‘Disclosure’ — or the adoption of financial reporting standards.”
He emphasized that a unique feature of Islamic banking is that it is assisted by a Shariah supervisory board, which provides guidance for the bank’s practices and also advises on the management’s adherence to high standards of ethical, social and religious commitments — the core principles of Islamic banking and finance.
The keynote speech on the first day, “Islamic Finance and the UK Financial Services Authority,” was given by Sir Howard Davies, chairman of the Financial Services Authority, UK-FSA.
He pointed out that there are no purely Islamic banks in the UK today, that there are 1.8 million Muslims permanently living in the UK and that this number equates to 340,000 Muslim households. He said that estimates are that UK Muslims have savings of approximately one billion pounds.
Last year, he said, over half a million Muslims from the Middle East and Pakistan visited the UK and spent nearly 600 million pounds, which shows that the potential market, whether for savings products, borrowing or simply transaction-related finance is a very large one.
“It is surprising that so far no dedicated Islamic banks have been established in London,” he added. “That does not reflect any lack of dialogue between the FSA and the Islamic community. The FSA is well established as a single regulator for the whole of the UK’s financial system, so it is a good moment to take stock of the way we now operate, of the objectives given to us by Parliament, and the way in which those objectives, and the regulations which flow through them, can be transposed to handle the particular needs and demands of Islamic financial institutions.”
Howard explained that the Financial Services and Markets Act provided the legal basis for FSA’s work. According to the statute which sets out the objectives of financial regulation, there are four tasks.
“First, we must maintain confidence in the UK ‘s financial markets. Second, we must promote public understanding of the financial system. Third, we must protect consumers of financial services while keeping in mind their own responsibilities. Fourth, we have to reduce financial crime. That objective has gained particular prominence in the last 12 months as international concerns about money laundering in particular have come to the top of the political agenda.”
He reiterated that the UK had a clear economic interest in trying to ensure that conditions for a flourishing Islamic financial market existed in London and that there was no objection to establishing an Islamic bank there.
Howard was clear in saying that any applications from Islamic institutions would be treated exactly the same as any other.
“It would not be appropriate, or even legally possible, for us to lower our standards for a particular type of institution. I would strongly argue that since, if it is to be successful, an Islamic bank will need a reputation for capital soundness and proven management. It would in any but the very shortest term be entirely counterproductive to authorize a bank on a different basis from conventional institutions.”
