The FSA says a move to principles-based regulation will provide the right environment for Islamic finance to flourish in the UK.
The regulator has published a paper outlining its future role in the growth of Islamic finance, pointing out that it is now worth around £250bn globally.
It says it hopes the UK will be the “major European centre” for Islamic financial products and services.
The paper identifies some of the challenges and opportunities specific to Islamic finance and says it has actively encouraged its growth by providing an “open and flexible regulatory environment”, which accommodates both Islamic and non-Islamic financial institutions.
It adds it is the first European regulator to authorise a wholly Islamic bank, and points out other Islamic financial institutions have since been authorised.
FSA Chairman, Callum McCarthy, says: “Islamic finance is a fast growing force in the world economy and the FSA's open and principle-based approach to regulation offers the right environment for it to flourish in the UK.
“There is huge potential for an expansion of Islamic offerings in the UK's financial markets, which will in turn boost London's position as an international financial centre.
“We believe in a ‘no obstacles, no special favours’ approach when authorising new financial institutions and welcome the development of this market as it provides certain UK consumers with financial products that are in line with their beliefs.”
The FSA does not regulate the Sharia compliance or otherwise of Islamic financial products.
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