Islamic Finance In Europe: The Regulatory Challenge

Over the last few years, Islamic finance has developed and spread quite significantly all over the globe. This development brought with it many challenges and opportunities that industry players, supervisory authorities, and other parties are trying to examine and identify. The regulatory challenge is considered to be among the crucial challenges that need to be properly addressed as a prerequisite for an environment conducive to the development of this emerging industry. This paper examines the European approaches to overcoming regulatory issues related to the establishment of Islamic finance institutions and the provision of Islamic products and services in these advanced and very sophisticated financial centers. The paper reveals that, despite the fact that cross-country examinations indicate the existence of a variety of models and approaches adopted worldwide to accommodate IF in conventional systems, European countries seem to follow the minimal change approach that relies primarily on tax regimes to achieve level playing field for IF through the policy of “no obstacles, but no special favours” initiated by the UK authorities in their handling of the matter. The paper also reveals that civil law countries in mainland Europe, like Italy, are adopting the policy of “wait and see” by letting market forces decide the future direction of the presence Islamic finance in their domiciles.