Islamic Capital Markets and Products

CHAPTER 5Legal and Regulatory Considerations Pertaining to Islamic Capital Markets

By Michael J. T. McMillen*

This chapter provides an overview of select aspects of legal (including regulatory) issues affecting the Islamic Capital Market (ICM). The categories of issues discussed in this chapter are (a) securities laws and regulatory regimes, (b) securitisation laws, which include laws and regulations applicable to sukuk, and (c) legal regime matters, including both legal opinion matters that are critical to capital markets transactions and general systemic matters.

Essentially all of these matters are, at core, specific to each jurisdiction in which the relevant capital markets activities occur. Most of the relevant laws, regulations and standards currently in effect have been developed in the context of interest-based instruments and transactions and embody interest-based assumptions and techniques. A challenge to the ICM industry (and the broader Islamic finance industry) is the adaptation between the existing capital markets laws, regulations, standards and practices on the one hand, and the needs of the ICM industry on the other hand. That challenge should be foremost in mind as one considers this chapter.

The chapter begins with a consideration of capital markets (securities) laws and related regulatory regimes. A brief survey of the theories of governmental policy that support capital markets laws and regulations is presented first. This is no abstract undertaking. As ...