In 2012 two leading Islamic asset managers, both from Saudi Arabia, established their funds in Europe. While NCB Capital launched its Shariah compliant UCITS platform in Ireland, SEDCO Capital established its Islamic funds platform in Luxembourg. They are following an increasing number of Islamic asset managers with successful track records that are venturing out from their domestic markets and looking for products in well-established jurisdictions that provide them with the required global reach to maintain the success of their funds.
While offshore jurisdictions are certainly still considered for the establishment of Islamic funds, domiciles within the EU are gaining momentum. Many jurisdictions in the Middle East and Asia have passed specific Islamic finance legislation, which has not been the case in any EU country, nor on an EU level. Nevertheless the most prominent European domiciles, such as Luxembourg and Ireland, have been successfully competing in attracting Islamic funds.
In Ireland the financial regulator established a working group to improve the approval process and the Irish tax authorities issued a set of confirmation and guidance notes regarding the treatment of Islamic funds. Luxembourg, the leading fund domicile in Europe and already amongst the five leading domiciles for Islamic funds, has also undergone a thorough analysis of its legal framework, with the participation of market participants, the Luxembourg regulatory authority and the tax authorities. It was concluded that the existing legal and regulatory framework was well adapted for the set-up of Islamic financial instruments, Islamic transactions and Islamic funds; and tax authorities confirmed the treatment of the main types of Islamic instruments, as well as the application of the substance-over-form approach. In December 2012 the Association of the Luxembourg Fund Industry (ALFI) issued its collection of best practices for the setting-up and servicing Islamic funds, with the aim of giving service providers guidance as to how Islamic funds should be set up in Luxembourg and of providing fund managers aiming to set up an Islamic fund in Luxembourg with the understanding of how Shariah principles will be applied from an operational point of view to their funds.
This trend is set to continue in 2013, as Islamic asset managers are looking to expand internationally, outside of their domestic markets. Well-established products such as UCITS can help them to reach new markets which have a long-standing reputation of being well regulated and providing a high level of investor protection.
Bishr Shiblaq is the head of the Dubai office at Arendt & Medernach – Avocats. He can be contacted at
[email protected]
.