Establishing a fair, reasonable and workable regulatory framework for Islamic banking in Malta

Abstract

The unprecedented growth witnessed by the Islamic banking and finance industry has fostered Malta's interest in tapping into this market. The regulatory implications of the establishment of Islamic banks in Malta form the heart of this thesis. The thesis begins by arguing for the necessity of banking regulation, since it would be futile to discuss the establishment of a regulatory framework for Islamic banks in Malta without understanding why banks must be regulated in the first place. Attention then turns to Malta's interest in tapping into the Islamic banking market and, conversely, Islamic banks' interest in establishing themselves in Malta; the alternatives through which Islamic banks in Malta may be provided for are discussed. The conclusion is that the issues which arise when Islamic banks operate within the current Maltese regulatory framework should arguably be addressed on an ad hoc basis. The principles which underpin Islamic banking are examined and contrasted to conventional banking principles, thus highlighting the fundamental operational distinction between Islamic banks and their conventional counterparts. This sets the tone for the ensuing examination of the issues faced by Islamic banking products when operating in the current Maltese regulatory framework, inter alia: the issues posed by the definitions of 'deposit' and 'business of banking' in the Banking Act and the potential role of an investment services licence in bypassing these issues, the Depositor Compensation Scheme and the prohibition of banks owning immovable property. The thesis also addresses the regulatory issues in relation to capital adequacy and accounting standards.