The UAE Cabinet on Sunday approved the launch of a new Sharia Authority, a national regulator to set standards for Islamic finance products, according to the state news agency Wam.
The board will oversee the Islamic financial sector, approve financial products and set rules and principles for banking transactions in accordance with Islamic jurisprudence on finance.
The Central Bank will oversee and select the members of the new board. Financial institutions will contribute to the running of the board by paying fees to the Central Bank.
Currently, individual financial institutions run their own Sharia boards, which are groups of scholars who decide on whether individual products are consistent with Islamic jurisprudence on financial affairs.
The national regulator will not replace the Sharia boards of individual banks, but will be approve new products that have already received approval from individual Sharia boards.
Analysts have long pointed to the absence of a single regulator as an obstacle to the development of the Islamic finance sector in the UAE.
The lack of a national board means that disagreement on Sharia standards persists, as individual Sharia boards disagree on the Sharia-compliance of particular products.
Individual banks may market the same products differently, while some UAE banks use financial structures to underpin products that are not approved by Sharia scholars in other jurisdictions.
In a report published last year, Deloitte said that a national Sharia board could “reduce future disputes and increase transactions”.
Oman launched a national Sharia board in 2012, while Bank Negara Malaysia, the Malayasian central bank and the world’s largest individual issuer of sukuk, launched its national Sharia board in 1997.
The UAE board, which is modelled on the Malaysian board, will have “a wide remit when it comes to approving products”, and should make “customers’ lives a bit easier” by ensuring consistent Sharia standards across all products, a person familiar with the government’s plans said.
“It’s one of the key pillars of the Dubai Islamic Economy Strategy, and it has been a Central Bank priority since 2013, when work began on this.”