Sukuk Securities: New Ways of Debt Contracting

CHAPTER 11 Regulatory Issues for Sukuk Financial Products^*

This chapter considers the regulatory issues for sukuk securities from the point of view of essentially secular financial services regulation. That is, it does not consider the question of what is or is not compliant with Shari’ah, although it necessarily considers issues of Shari’ah governance. This partly reflects my [original chapter author Peter Casey; see footnote] own background, but it also reflects the fact that the sukuk market is an international one, despite my location in Dubai as the regulator. Sukuk are originated, bought, and listed in many countries, including some (like the United States) where Muslims are a relatively a small percentage of the population.

In many such countries, for constitutional, political, or practical reasons, regulators must approach sukuk from an essentially secular standpoint, and this chapter sets out some of the issues they will face. Questions relating to Shari’ah permissibility are considered in other chapters. In dealing with the regulatory issues, we will consider sukuk as capital market instruments that raise market conduct issues that bear on investor protection. We will also consider them as instruments that may be held (or issued) by financial institutions, which raises issues of their treatment for capital adequacy purposes.

First we will consider the sukuk market as it currently exists, and then we will examine possible developments of it. We will concentrate on ...