Well, what is to be said about 2021? It was not as bad as 2020 for one thing! The rest of the world caught up with the UAE in opening up their respective economies more or less. We are in the midst of a global supply chain crisis, labor shortages (how is Brexit working out for you UK?) and an energy crisis. Europe is noticing that renewables are not much use if the wind does not blow, the sun does not shine or the rain does not fall. They turn their face to nuclear power which is of course emission-free. The Taliban are back in power in Afghanistan and not forgetting a climate crisis. So how are the markets reacting to this? All-time highs! Remember, the market can stay irrational longer than you can stay solvent.
Review of 2021
With the ‘Great Resignation’ in full swing, there has been quite a bit of dislocation in general. After spending months in lockdown (unlike the weeks in the UAE), quite a few people decided that they were not interested in whatever job they had. Or indeed, their job unfortunately disappeared during the coronavirus pandemic.
Money was printed like there was no tomorrow by the main global economies and the gigantic bill for COVID-19 will soon be coming due. These are not times that regulators make sweeping changes to the status quo if they can help it. The world in general is finding its feet again in this new normal. Working from home is becoming a fixture of life, or people are just quitting those employers (public and private sectors) who do not permit it.
Of course, there was one regulator who is an exception to the rule: the Central Bank of the UAE. In May 2020, the Higher Shariah Authority was created and in October 2020 it issued specific legislation on how Shariah boards were to be constituted and what departments need to be created and how they are staffed.
The regulations were quite onerous for Islamic windows in particular with little Islamic activity in the UAE onshore and a number of international banks effectively exited the UAE onshore market by asking to place their Islamic licenses on hold.
The effects of the Higher Shariah Authority’s ruling on the strict application of AAOIFI Shariah standards are there for all to see. I am not aware of any other regulator who approves specific products. It certainly does not exist in the conventional space which, like it or not, Islamic finance is in competition with.
The International Islamic Financial Market with the assistance of a number of international banks and organizations tackled the interbank offer rate (or IBOR) transition issue and published a paper containing structuring solutions for a risk-free rate on Murabahah and Ijarah transactions in October 2021. This is a seminal and timely piece of work and shows how international consensus-building within the industry can deliver practical solutions for the benefit of everyone.
Preview of 2022
The bill for COVID-19 and the climate crisis will be the main issue on the minds of most of the larger countries. I think there will be limited moves by regulators to move the goalposts in the Islamic finance space next year, with the exception of onshore UAE as COVID-19 is in the rear-view mirror for the UAE. I think it is a visa requirement to mention Expo 2020 in Dubai!
Data protection will come to the fore in 2022 year as larger and larger fines are issued by the relevant competent authorities in the EU. Nothing motivates a corporate quite as much as the possibility of a large fine or potential jail time for senior executives for breaching rules and regulations.
There will be more enforcement cases for breaches of anti-money laundering and counter-terrorism financing rules recently assessed by the Financial Action Task Force as it will want to see evidence that the laws now in place are adequate and enforced. No better way to do this than point to convictions of senior people for serious crimes.
An area that is exploding at the moment and will require a coherent response from regulators sooner rather than later is the crypto asset space. I have my own recently aired views on Islamic finance and cryptocurrencies and non-fungible tokens. Islamic banks ignore them at their peril; there are already Shariah compliant providers out there selling various crypto assets.
We certainly live in interesting times. Regulators around the world want to assist in resuscitating their respective economies as opposed to killing companies with overregulation, for now. This will change. We will probably have a few years of hedonism before the inevitable crash. After the roaring 1920s, we had the Wall Street crash. History does not repeat … but it tends to rhyme.