A paper outlining the social and economic reasons behind Islamic finance has set out how regulation has been an important factor for the growth of Islamic financial products and services in the UK. It also identifies some of the challenges and opportunities specific to Islamic finance.
The regulator has encouraged this growth by providing an open and flexible regulatory environment, which accommodates both Islamic and non-Islamic financial institutions.
The FSA is also the first European regulator to authorise a wholly Islamic bank.
The paper also sets out how the FSA has been able to deal with particular issues related to Islamic finance within its existing regulatory framework.
For example, retail consumers taking out Ijara mortgages (a type of Islamic home purchase plan) now get the same protection as conventional mortgage customers since the introduction of new regulations in April 2007.
There are also a number of international banks which offer Islamic products at their UK branches. Furthermore, several Islamic securities (Sukuk) are now listed in London.
FSA Chairman, Callum McCarthy, said: "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."
It pays to remember though that the Sharia compliance or otherwise of Islamic financial products is not yet regulated in the UK.
