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reportonbusiness.com: Sharia-bank bids trigger concerns September 25, 2007

Posted by islamicfinanceaffairs in Uncategorized.
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reportonbusiness.com: Sharia-bank bids trigger concerns

Ottawa has received its first applications to start up Canadian banks operating within the strictures of Islamic religious law – financial institutions that, if approved, would be among the first in the West.

Canada’s bank regulator, the Office of the Superintendent of Financial Institutions, is studying two proposals for banks that offer services in keeping with Islamic laws that forbid speculation and interest but are in favour of transactions where profit and loss is shared.

The applications came to light in government documents obtained by The Globe and Mail under access to information laws, files that show Ottawa believes there are four other possible applicants keen to start banks operating under Islamic religious law, or sharia.

While some banks in the West offer sharia-compliant products, few aside from the Islamic Bank of Britain are standalone institutions set up expressly for this purpose.

The applications have triggered a slew of concerns among regulators,
documents show, including whether these institutions could be reliably
audited, governed by directors or monitored. “Are the deposits
insurable?” one OSFI paper asks, suggesting the banks may have higher
liquidity risks and suffer from a “lack of knowledgeable external
auditors.”

The applications are taking Canadian regulators into largely
uncharted territory as they puzzle over what sort of regulatory
treatment would apply.

Regulators say the challenge is trying to discern exactly what types
of financial transactions are being proposed and whether they could
conceivably fit what’s allowed under the Bank Act.

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