Today the Bank of England announces the publication of a consultation paper on the establishment of a Shari’ah compliant deposit facility. Based on market feedback and internal analysis, the Bank is minded to implement a deposit facility using a fund based model. This is one of the two deposit models originally outlined in the 2016 consultation exercise; the current paper provides more technical detail on how this model would work in practice.
The work to develop a Shari’ah compliant facility commenced in the second half of 2015, and is part of the Bank’s more general approach to broadening market access to central bank liquidity facilities. The Bank recognises that Islamic banks are currently unable to use the Bank's existing facilities because they involve interest, which is not deemed Shari’ah compliant. In particular, the Sterling Monetary Framework is the mechanism by which the Bank sets interest rates.
As stated at the outset, the primary focus of the Bank’s work is on establishing a deposit facility, as this is currently the area of greatest demand. Once the deposit facility is operational and has been evaluated, the Bank may commence work on an accompanying Shari’ah compliant liquidity insurance facility. However, the resource requirements for further work will necessarily be considered in the context of the Bank’s wider priorities.
Views are sought from the UK Islamic banks in particular, but also from interested parties more generally. The deadline for responses is Tuesday 23rd May. Notwithstanding any material impediments arising, work will then commence on implementation. While work both to integrate the facility into the Bank’s systems and processes, and to create a set of standardised terms and contractual documentation, will commence following the close of this consultation exercise, the deposit facility is unlikely to be ready before Spring 2018. Further details on implementation, including timeline, will be posted on the Bank’s website in due course.
Press release
We have today published a consultation paper on establishing a Shari’ah-compliant deposit facility.
Background to this consultation
Related Links
