Sukuk Securities: New Ways of Debt Contracting

CHAPTER 8 Regulations with a Difference

Sukuk securities, similar to their conventional counterparts, are regulated—in fact, extra regulated. In addition to having to comply with the common financial regulations, they are required to follow Shari’ah regulations. This chapter discusses three major international Shari’ah regulatory bodies.

REGULATING SUKUK

In order to be recognized as an Islamic, or participation, transactions, sukuk products must comply with Islamic moral and ethical codes in financial contracting. The Shari’ah regulations governing sukuk, which are similar to those governing other Islamic finance and banking practices, are dictated by three sources: international organizations, local authorities, and Shari’ah supervisory boards and advisory councils.

Some major Islamic financial institutions have their own in-house Shari’ah supervisory boards. This is mostly the case among investment companies and banks. In the process of issuing sukuk, according to the Liquidity Management Center of Bahrain, Shari’ah advisors should study the proposed sukuk structure and suggest a structure that fulfills the economic aims of the issuance of the sukuk. In addition, the Shari’ah advisors should work closely with the legal counsel of the issuer and the arranger (the investment banker) to ensure that the legal documents are in line with Shari’ah requirements. Finally, the Shari’ah advisors should issue a fatwa, a legal opinion on the compliance of the sukuk products with basic ...