Foundations of Shari'ah Governance of Islamic Banks

Chapter 3Legal and Regulatory Aspects of Sharī‘ah Governance

Chapter Summary

This chapter highlights the need to consider the extent to which jurisdictions recognize and enforce sharī‘ah before settling on the jurisdiction that would govern the Islamic financial transaction. It questions secular common law jurisdictions’ ability to address Islamic financial cases with potential sharī‘ah issues by presenting three landmark Islamic finance cases wherein sharī‘ah dimensions were contested that were brought before the English courts. Due to gaps in sharī‘ah dimensions of these jurisdictions, we predict that Malaysia, a common law jurisdiction with dynamic legal and regulatory arrangements that gives legal effect to sharī‘ah precepts of Islamic finance, could soon overtake secular jurisdictions to become the jurisdiction of choice for the industry. After underlining the importance of the regulator in protecting the rights of consumers and ensuring appropriate disclosure to stakeholders, the chapter identifies six key characteristics associated with governing sharī‘ah aspects of Islamic banking. Using in-depth analysis of the legal and regulatory systems and measures of the United Kingdom, Iran, United Arab Emirates, Qatar, Malaysia, and Oman with respect to sharī‘ah governance, the chapter classifies these jurisdictions into five categories of approaches. These are as follows: hands-off, nominal, engaged, proactive, and committed.

3.1 Institutional Arrangements

Legal and regulatory ...