1. Islamic capital markets regulation Peter Casey Director, Policy & Head of Islamic Finance 19 May 2009

2. Page 2 Securities regulation and Islamic finance IOSCO Core Principles provide the norm Analysis of application to Islamic finance published September 2008 Followed earlier (2004) report No major issues of compatibility For this talk will focus on capital markets

3. Page 3 The key products Equities Funds Sukuk Few exotic products – though fertile minds are working

4. Page 4 Equities Issues are underlying activities … … and receipt/payment of interest Few issues – unless exchange chooses to “tag” securities

5. Page 5 Funds Tend to be long-only Property is popular (hence liquidity issues) Some exploration of other strategies, but limited acceptance of contractual structures Shari’a screens, often operated by external agencies Issues of Shari’a governance

6. Page 6 Sukuk In principle (at least) 14 base contracts In practice many fewer used But structures may involve several contracts Cannot identify economic effect from “leading” contract Controversy over permitted features

7. Page 7 Issues for regulators Shari’a governance (and competence) Disclosure, and the alternatives

8. Page 8 Shari’a governance Affects funds, intermediaries and issuers To call a product Islamic is an implied representation Three broad approaches: Not our business Shari’a systems Regulatory standards and rulings For sukuk, how long must governance last? Approaches could differ in wholesale and retail markets

9. Page 9 Product disclosure – initial and ongoing For regulators, key issue is understanding product structure and risks May mirror a conventional product, but may not Also issue of Shari’a disclosure

10. Page 10 The sales process Mainly affects intermediaries Disclosure still central … but with intelligibility Disclosure, suitability and product regulation

11. Page 11 Challenges for the future New fund structures New sukuk structures Repos, swaps, options etc Achieving active trading

12. Page 12 Dubai Financial Services Authority www.dfsa.ae info@dfsa.ae +971 4 362 1500