BoE to Establish A Liquidity Facility That Complies With Shari’ah
Dave Ramsden, Deputy Governor, Markets and Banking, announced that BoE will establish a subsidiary to house the Shari’ah-compliant facility (SCF). The SCF, once launched, will allow UK Islamic banks to hold sterling deposits at BoE for the first time. The SCF will provide Islamic banks with greater flexibility in meeting Basel III liquidity requirements, putting them on a more level playing field with conventional banks, which can already place deposits at the central bank.
Conventional banks can already hold reserve accounts at BoE; therefore, the SCF is an important development in enabling Islamic banks to do the same, providing them with greater flexibility to meet Basel III liquidity rules. The SCF will also be the first non-interest-based liquidity facility to be offered by a major Western central bank, providing important structural support to the Islamic finance sector in UK and further strengthening the position of UK as an international financial center. Details of how the SCF will operate in practice can be found in the BoE consultation paper, which was published in February 2016, on establishing Shari’ah compliant central bank liquidity facilities.
At its September meeting, Court of Directors of BoE agreed that the subsidiary will take the form of a special purpose vehicle (SPV), called the Bank of England Alternative Liquidity Facility (BEALF). BEALF will be formally incorporated shortly and will be a wholly owned subsidiary of BoE. Members of the senior management of BoE will be appointed as its Directors. Further work remains before the SCF can be launched, but the incorporation of BEALF marks an important milestone for this medium-term project. BoE will make further operational announcements regarding the facility in due course.
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Keywords: Europe, UK, Banking, Islamic Banking, Shari’ah, SCF, BEALF, Alternative Liquidity Facility, BoE
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