DFSA Warns Of Global Threat To Islamic Banking Industry
Islamic finance market’s growth potential will be snuffed out if covered by conventional banking regulations, DFSA chief warns.
Dubai’s financial watchdog has warned his international counterparts not to pigeonhole Islamic finance under existing conventional banking regulations.
Treating Shariah financial services under the traditional model will snuff out any potential growth in the fledgling industry, said Peter Casey, head of Islamic Finance at the Dubai Financial Services Authority (DSFA).
“We’re in a world where there’s more pressure to apply standards generally, and the unthinking response is to apply conventional ones, forcing Islamic banking into that role.
“If you don’t think about what Islamic finance issues are then you’ll be in trouble,” said Casey.
He added that because Islamic finance currently only makes up only one per cent of global markets, regulation can’t be constrained to individual markets. “It needs international standards if it’s to grow”.
Some have suggested that Islamic financial regulators should adhere to policies of standards-setting bodies, such as AAOIFL, IFSB and IIFM. Casey also said there needs to be a focus on accountancy standards within the Shariah industry.
“There is a real danger that regulators around the world will use conventional standards if you don’t make a case now for a specific standard for Islamic finance. The biggest problem for non-muslim countries like the UK is persuading regulators to set up a central shariah council. That’s not going to happen anytime soon in the UK,” he added.
Until Islamic finance loses its “smoke and mirrors” approach and improves its transparency and consistency, regulators will be forced to adopt a one-size-fits-all approach anyway. Will the Islamic finance industry be up to the challenge to do that?