why islamic finance has an important role to play in supporting the recovery from covid – and how the bank of england ’ s new alternative liquidity facility can help speech given by andrew hauser, executive director, markets uk islamic finance week 2020 2 december 2020 i am grateful to arshadur rahman for his help in writing this speech, and to sarah hall, maggie illingworth, rhys phillips and chris worthington for their comments and guidance. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice introduction it ’ s a privilege to be with you today to talk about the bank of england ’ s work on islamic finance – and to announce the launch date for our new shari ’ ah compliant non - interest based deposit facility, the first such account from a western central bank. the facility, in which deposits from islamic banks will be backed by a return - generating fund of high quality shari ’ ah compliant assets, will further strengthen the united kingdom ’ s role as the leading international financial centre for islamic finance outside the muslim world. but it also goes deeper – because the core principles1 of islamic finance are strikingly well suited to responding to some of the biggest challenges we will all face in rebuilding our economy once covid has passed. prioritising equity - like risk - sharing over debt. factoring ethical and environmental considerations into investment decisions. and embracing innovative financial solutions beyond traditional banking. and that lies four square within the bank of england ’ s mission to promote the good of the people of the united kingdom, muslim and non - muslim alike. global growth in islamic finance islamic finance is a global success story, with assets of $ 2. 4 trillion in 2019 ( table 1 ). that ’ s 11 % higher than a year earlier, and fully a third bigger than in 2015. table 1 : size and composition of islamic finance services industry ( $ bn, 2019 ) * * gulf co - operation council ( bahrain, kuwait, oman, qatar, saudi arabia, and the united arab emirates ). source : islamic financial services industry stability report 20202 three quarters of those islamic finance assets are held by banks – and are large enough to play a for a summary of these principles, see eg https : / / www. bankofengland. co. uk / - / media / boe / files / quarterly - bulletin / 2017 / islamic - banksand - central - banking. pdf? la

management transactions for new bond issues is nearly final, and an earlier draft standard on fx stop - loss orders has been absorbed into the fx global code. in each case, potential conflicts of interest are mapped to high - level principles designed to mitigate them. for reference price transactions, emphasis is placed on transparency with clients on mechanics and potential conflicts, and on mitigating the risk that the wider transactions of dealers could be market moving. the draft standard on risk management for new bond issuances sets out principles to mitigate risks around selection and formation of reference rates. the fmsb ’ s statements of good practice, such as for surveillance of fx markets, provide more detailed guidance and worked examples to help set expectations. the fmsb is also scanning the horizon for future misconduct risks, including through its innovative behavioural cluster analysis. rightly, given rapid changes in underlying market structure, this process has prioritised work on vulnerabilities arising from fast automated markets. will these standards and codes make a difference? we know from history that codes are of little use if nobody reads, follows or enforces them. why should the fmsb ’ s efforts be expected to help reverse the tide of ethical drift? indeed, given the long history of misconduct, aren ’ t such efforts akin to king canute rebuking the waves? i ’ m more optimistic that the tide will turn because the fmsb is part of a much broader effort by uk authorities and market participants. together, we have created a comprehensive and mutually reinforcing set of measures that strengthen the hard and soft market infrastructure. the resulting incentives give fmsb standards moral force and practical consequence. first, in the fmsb ’ s core work, the best in the market are taking responsibility for identifying and codifying best practice, in a way that complements and reinforces existing regulation. the fmsb now convenes senior participants from fifty global issuers, underwriters, asset managers, exchanges, custodians and investment banks. the breadth and engagement of the membership gives its standards credibility and creates peer pressure within the industry to promote adherence. canute, king of denmark, england and norway, 995 - 1035, reputedly set his throne by the sea shore and commanded the incoming tide to halt and not wet his feet and robes. yet " continuing to rise as usual [ the tide ] dashed over his feet and legs without respect to his royal person. then the king leapt backwards, saying : '